Application and ISDA Definitions - Recommended clauses

"(a) Application. Every transaction between the parties which is, or is described in its confirmation as being, of the type specified in the table below is a Transaction governed by the terms of this Agreement (and not any other master agreement) and forms part of this Agreement unless the parties expressly agree in writing that this clause is not to apply. This applies whether or not the parties refer to this Agreement or state that the transaction is governed by the terms of any other master agreement when entering into the transaction.

(b) ISDA Definitions. The definitions and provisions contained in the respective ISDA Definitions specified below are incorporated into each Confirmation of a Transaction between the parties which is, or is described in its Confirmation as being, of the type specified below. If there is an inconsistency between those definitions and provisions and any such Confirmation, the Confirmation prevails.

Types of transactions ISDA Definitions
Currency option transaction or FX transaction 1998 FX and Currency Option Definitions, including Annex A, as published by International Swaps and Derivatives Association, Inc., the Emerging Markets Traders Association and the Foreign Exchange Committee
Forward rate agreement 2006 ISDA Definitions as published by International Swaps and Derivatives Association Inc.
Forward commodity transaction; spot commodity transaction; bullion spot transaction; bullion forward transaction 2005 ISDA Commodity Definitions, including the Annex, as published by International Swaps and Derivatives Association, Inc.



Many of the Australian Addenda previously, but no longer, recommended by AFMA contain provisions which either:

  • incorporated transactions of a particular type to be Transactions under the ISDA Master Agreement; or
  • incorporated the relevant ISDA Definitions into the Confirmations of Transactions of a particular type.

These provisions were included as many Confirmations for particular types of transactions, such as FRAs and FX transactions are confirmed using short form confirmations which do not include the usual ISDA introductory wording.

Now that AFMA no longer recommends using the Addenda, AFMA recommends that provisions of this type be added to the Schedule to a Master Agreement if the parties intend to use short form confirmations. The recommended clause serves this purpose and allows for the parties to add the relevant types of transactions to the table as necessary.

Clause (b) incorporates only the specified ISDA Definitions and does not of itself automatically incorporate updates of ISDA Definitions. This is because there may be delay before a market participant wants to use a new set of ISDA Definitions, if they are to be used at all. Parties should consider whether they need to refer to other types of transactions (this will depend largely on the types of Confirmations they intend using and whether the confirmations refer to specific ISDA Definitions booklets).

Care! The recommended clause has been prepared on the assumption that both clauses (a) and (b) will be included (clause (a) refers to the table in clause (b)).

Care! The types of transactions that have been listed are those that, not uncommonly, are documented using short form confirmations not in the prescribed ISDA format. It is not necessary to list a transaction type in the Schedule if that type of transaction will be documented using a confirmation in the prescribed ISDA format. This is because all prescribed ISDA confirmations expressly identify which ISDA Definitions booklet applies to the transactions. Take particular care if it is suggested that an item be included at the end of the list in the suggested Schedule clause along the lines of "All other transactions - 2006 ISDA Definitions as published by International Swaps and Derivatives Association Inc". This will be appropriate only if the other types of transactions intended to be traded by the parties are of a type covered by the 2006 ISDA Definitions (e.g. equity derivatives are not covered by the 2006 ISDA Definitions). Also, it is emphasised again that this clause is needed only if it is intended to use non prescribed ISDA confirmations.

Last Update Date 29 Jun 2011