International Swaps and Derivatives Association

The International Swaps and Derivatives Association (ISDA ) is a trade organization of participants in the market for OTC derivatives which currently has over 800 members from almost 60 countries, which has the aim to facilitate trade privately traded derivatives in many ways. The association is known here mainly developed by her and published ISDA Master Agreement, a number of framework agreements for trade in specific OTC products where essential contractual obligations between trading parties are fixed.

The headquarters of the ISDA is located in New York.

History

Start-up phase

The ISDA went out in early 1985 from accumulated in the previous year efforts of some swap dealers to develop standardized contract terms for trading in interest rate swaps. The background to this initiative were the significant transaction costs that previously brought OTC transactions with them, including, for example, legal fees for making individualized contracts for the full terms of the transaction and a high expenditure of time for agreement on basic contractual definitions. In addition, was opposed by the lack of standardization of the tradability of derivatives entered into on a secondary market, there had to be examined individually in each case whether and under what conditions the product was ever transferred. A year later removed - - In June 1985, the ISDA with the announced Code of Standard Wording, Assumptions and Provisions for Swaps, a first document with basic conceptual definitions for the contract design out that is still exclusively on trade with U.S. dollar based interest rate swaps limited. The narrow scope was not yet widely available and the goal of standardization could thus only be achieved inadequate because still individual agreements were necessary, and the ISDA pattern definitions were used by market participants to varying degrees and adapted to their own concepts.

With the published 1987 Interest Rate and Currency Exchange Definitions, which basic definitions and determinations of other contractual stipulations between trading parties contained, and the Interest Rate and Currency Exchange Agreement, with the ISDA now also a first actual framework agreement for trade interest rate and currency swaps was created in multiple currencies, the organization laid the foundation for large-scale and especially global enforcement of their templates. The agreement included the case once agreed between two parties framework agreement itself - in this were the general principles included the contractual relationship; the contract other regulations could be set summarized in an annex (Schedule ) - the specific conditions of individual transactions were in short separate confirmation ( confirmations ) set. The process of creating the document was based on the concept, approaches explicitly assume only union in the Agreement; There were, however, larger differences between market participants, several options were being held in the Schedule section, from which the actors were free to choose in the contract; this was the basis for the subsequent Master Agreement dar. content main achievement of the agreements ( in the later versions) was the definition of a netting process by which, for example, against each existing claims across different transactions could be counted against each other.

Meanwhile, enlarged towards the end of the 1980s against the backdrop of a booming OTC market, the political function of the organization in such a way that they increasingly established itself as the de facto representative of the OTC derivatives industry. Here ISDA members and representatives attended before congressional committees position and were propagated in dialogue with regulators.

1990s until today

After the Interest Rate and Currency Exchange Agreement had been completed by 1987 in the following years by a number of annexes which, innovations supporting the market into account, its control circuit gradually to interest rate caps and interest rate floors had (1989 Cap Addendum ) expanded and swaptions (1990 Option Addendum ) the documents in 1992 were finally on updated versions of the ISDA Master Agreement. Its uses ranged beyond its predecessor by it was designed principally for the use of more or less all the (then) OTC derivatives, including, for example, commodity swaps, currency options or index swaps. The agreement was, strictly speaking, of two parts, one version for domestic and another for cross-border and cross-currency transactions. In the years that the ISDA definition several collections issued by which the purpose of the Master Agreement could be expanded, including commodity derivatives and certain bond options as well as the now widely used CDS products (1999 Credit Derivatives Definitions ).

2002, ISDA published a new version of the Master Agreement, which should take into account market changes into account diverse, which have occurred in the past decade. It was optional for the Marktpartizipanten whether to retain their old contracts throughout to expand some new parts ( standard form amend ments) or - which was rare for reasons associated expenses - wanted to completely replace the new framework agreement.

In 2003, a new version of Credit Derivatives Definitions published, which were then expanded and revised in the years again and again. The changes culminated in March and July 2009 in the wake of the global financial crisis in several protocols, which were a response to the high number of credit events at this time. In the so-called March settlement the settlement of 2003 by a new processing method was supplemented (auction settlements ) and should heterogeneities in the classification of credit events are dispelled by the fact that now special, divided into regional areas of responsibility committees (credit Derivatives Determinations committees; "DC" ) should decide on their identification and watch over the settlement process. To implement these provisions not only for future contractual arrangements, and the ISDA, the Big Bang Protocol presented also by its accession, the parties were able to adapt the new rules retroactively to already made CDS transactions.

Basic principles of the Master Agreement

The total contractual held ISDA documentation ( according to the versions of 1992 and 2002) consists of the following parts:

The Parties shall initially once the standard framework contract including the Schedule and Credit Support Annex firmly. Individual transactions are subsequently retained by contract by a Confirmation, are defined in the transaction-specific details. This definition is again in recourse to the definitions of one or more of the issued just over a dozen of the ISDA definition collections. Legally intends the ISDA rules that everyone agreed with an existing confirmation from the elements 1-4 Entire Agreement arises - to what extent this is legally feasible, however, is controversial.

ISDAFIX

Since 1998, the ISDA is under the name ISDAFIX out a number of Referenzsinssätzen for interest rate swaps.

Criticism

Criticism ISDA came in the wake of the Greek financial crisis for their method in the determination of credit event under the CDS instruments. The focus is in particular the fact that the competence, whether due to restructuring of Greek government bonds, a credit event -. , And thus the payment of CDS premiums - was triggered, ultimately amounted to 15 representatives of the financial industry, which are represented in the European Determination Committee Critics fear, among other things, that it could lead to conflicts of interest.