Swaps Documentation

Swaps Documenation is handled differently depending on how the contract is cleared.

Cleared Derivatives: Swap Documenation will be

  • Clearing Agreement Futures Agreement  w/ OTC Addendum

Agreement between clearinghouse and clearingmember

  • Give-up Agreement

Agreement between final client and clearing member firm

Covers execution and submission of swaps

  • There may be collateral agreements  between final client and clearing member firm

 

Bilateral Derivatives: Swap Documentation will be:

  • The confirmation

Will be sent out by swap dealer, signed and returned by counterparty

Confirm includes the economic terms of the trade

Confirm can also include additional terms (.i.e, mutual break cloauses, etc.)

  • The ISDA Master Agreement

View the  ISDA Documentation Center here

Contains term common to all counterparties

  • Schedule A Is considered part of the ISDA MAster Agreement, where all unique terms agreed to between the counterparties are placed

Termination Provisions:

Specified Entities

Cross Default

Credit Even Upon Merger

Agreement to Deliver Documents

Certificates of Incorporation

Certificates of Incumbency

Board Resolutions – allowing the use of derivatives

Legal Opinion from corporate auditors

Security Pledges, Guarantees, etc. related to credit support

For example: if a counterparty had a bank loan and a swap, the bank would incorporate the securites agreement and the loan document into the ISDA so that a common set of default provisions would apply to the loan and the swap, and security would be available to support both exposures.

Other Provisions: Set-Off

Additional Terms for FX Transactions & Currency Options

  • The Standard Collateral Support Annex

The largest change is the Collateral Support Annex (CSA).  Before, these were highly customized agreements reflecting the relative opinoins of the two institutions.  Again, will depend on the country booking the swap, but will be  a STANDARDIZED contract.

 SCSA (Standard Collateral Support Annex) here 

The SCSA take the place of the CSA, changing several key elements:

Zero threshold and zero transfer minimum (aka mark-to-market daily)

Eliminate Collateral switch options

Align interest accruals on cash collateral

  • Swap Execution Facilities (SEF)
    • In the U.S.: this will be the Standard Collateral Support Annex (SCSA)
    • When a Bilateral Swap trades through a Swap Execution Facility (SEF) all trade details are automatically generated.
    • A reference number for each swap is created to identify each swap.  All other economic and legal terms of the swap are included in the confirmation.  Confirmations are sent eleectronically over a SSL, signed by an authorized signatory and returned to the respective counterparty.
    • You can learn all about SEF’s here

 

  • The GMRA (Repo Agreement) in order to post repo as collateral will be signed between the counterparty and the bank.
    • The purpose of the repo is to post collateral in a secured form.

 

 

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