Although not recommended, it is recognised that Transactions might be entered into before the parties have signed an ISDA Master Agreement. This can be achieved through the parties using a "long form" confirmation. A "long form" confirmation contains additional provisions that provide some structure to the Transaction. For example, the "long form" confirmation might deem:
- the terms of an ISDA Master Agreement apply to the Transaction; and
- the Schedule of the ISDA Master Agreement to be blank except for a limited number of provisions (eg deeming an Australian jurisdiction to be the governing law).
If that is the case, it is recommended that participants replace paragraph 1 of the Confirmation (see 3.2.1.30 "Confirmation without commentary") with the following (this wording is recommended by ISDA in footnote 2 to Exhibit 1 of the 2006 ISDA Definitions (page 107) except that ISDA's recommended wording has been amended to refer to the 2002 ISDA Master Agreement, to New South Wales as the governing law, Australian dollars as the Termination Currency and applies the 2002 ISDA Master Agreement Protocol (refer to 2.1.4.60.6 "2002 ISDA Master Agreement Protocol - Recommended" for commentary on the 2002 Protocol)):
"This Confirmation evidences a complete and binding agreement between you and us as to the terms of the Swap Transaction to which this Confirmation relates. In addition, you and we agree to use all reasonable efforts promptly to negotiate, execute and deliver an agreement in the form of a 2002 version of the ISDA Master Agreement (the "ISDA Form"), with such modifications as you and we will in good faith agree. Upon the execution by you and us of such an agreement, this Confirmation will supplement, form a part of and be subject to that agreement. All provisions contained in or incorporated by reference in that agreement upon its execution will govern this Confirmation except as expressly modified below. Until we execute and deliver that agreement, this Confirmation, together with all other documents referring to an ISDA Form (each a "Confirmation") confirming transactions (each a "Transaction") entered into between us (notwithstanding anything to the contrary in a Confirmation), shall supplement, form a part of, and be subject to, an agreement in the form of the ISDA Form as if we had executed an agreement in such form (but without any Schedule except for the election of [the laws of the State of New South Wales] as the governing law and [Australian dollars] as the Termination Currency) on the Trade Date of the first such Transaction between us. The parties agree that the terms of each Annex to the 2002 Master Agreement Protocol published by the International Swaps and Derivatives Association, Inc. ("Protocol") apply to that agreement as if the parties had adhered to the Protocol without amendment. In the event of any inconsistency between the provisions of that agreement and this Confirmation, this Confirmation will prevail for purposes of this Swap Transaction."
Participants must appreciate that this is not a complete substitute for signing an ISDA Master Agreement because there are numerous variables in the ISDA Master Agreement which will not operate until an election has been made. These are easily identified by looking through the Schedule to the ISDA Master Agreement. Participants should negotiate and sign an ISDA Master Agreement as soon as possible after adopting this approach.
Also it is recommended that legal advice be obtained if participants want to rely only on wording to this effect (and not on a signed ISDA Master Agreement) in order to constitute a close-out netting contract for the purpose of the Payment Systems and Netting Act 1998 (Cwlth).
There is a separate form of long form confirmation for electricity (see 3.8.9 "Long form confirmation").
Last Update Date 29 Jun 2011