2.1.4.60.6 2002 ISDA Master Agreement Protocol - Recommended Clause

 "ISDA Protocol. 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 this Agreement as if the parties had adhered to the Protocol without amendment."

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Commentary

The 2002 Master Agreement contains a number of significant changes to the 1992 Master Agreement. However, existing ISDA ancillary documents (for example, definition booklets and credit support annexes) drafted prior to 2002 do not contemplate these changes. As a result, there are a number of references in various ISDA Definitions booklets to terminology used in the 1992 ISDA Master Agreement that is not used in the 2002 ISDA Master Agreement. For example, a number of the Definitions refer to either "Market Quotation" or "Loss". Examples are:

2006 ISDA Definitions

Section 18.3 (a) and Section 18.3 (b)

1998 FX and Currency Option Definitions

Section 5.2 (c)(ix)

1996 Equity Derivatives Definitions

Section 1.25 , Section 6.9 (ii), Section 9.3 (b)(ii), Section 9.3 (c)(ii) and Section 9.6 (c)(ii)

1999 Credit Derivatives Definitions

Section 1.1.7 and Section 2.28

1997 Government Bond Option Definitions

Section 6.4 (c)

1995 Credit Support Annex

Paragraph 4(4)(i)(B), Paragraph 6 and Paragraph 10

1995 Credit Support Deed

Paragraph 5(a)(4)(i)(B) and Paragraph 12

 

Accordingly, using the 2002 Master Agreement in conjunction with the existing ISDA suite of documents could lead to some degree of "mismatch" between the relevant documents.

The ISDA Protocol (found on the ISDA website by clicking on the "Protocol" bar in the left menu on the home page) is designed to confirm the parties' intentions as to how the existing documentation is to interact with the 2002 Master Agreement. In particular, the ISDA Protocol includes 18 separate Annexes of amendments. These amendments, when elected by the parties as applicable, are deemed to be made to the pre-2002 ancillary documents when used in connection with a 2002 Master Agreement.

In light of the inconsistencies which would arise when ancillary ISDA documentation is used with a 2002 Master Agreement, AFMA recommends including in the Schedule to each 2002 Master Agreement a provision incorporating the ISDA Protocol amendments in a way that amends the relevant documents ancillary to that 2002 Master Agreement as if the two parties were adhering parties. This would give each party the benefit of the ISDA Protocol, whilst ensuring that the required amendments are made when each party enters into a 2002 Master Agreement.

Care! The recommended clause has been prepared on the assumption that all of the 18 available Annexes will be amended. Parties could elect to adopt less than all of the Annexes using this option if commercially preferred, however the example wording of the recommended clause would need to be changed.


Last Update Date 29 Jun 2011