Annexes 1 to 18 and Section 6 of the ISDA 2002 Master Agreement Protocol: Everything You Need to Know
The ISDA 2002 Master Agreement Protocol is a standardized document used in derivatives trading. This protocol outlines the legal terms and conditions between two parties who engage in over-the-counter (OTC) derivatives transactions. The protocol is constantly evolving to reflect changes in the market, and it includes various annexes and sections that help parties customize their agreements. In this article, we will take a closer look at Annexes 1 to 18 and Section 6 of the ISDA 2002 Master Agreement Protocol.
Annexes 1 to 18 provide customizable language to the Master Agreement, based on the various types of derivative transactions that parties may enter into. Here is a brief overview of each Annex:
Annex 1: Equity Definitions
Annex 2: Interest Rate and Currency Derivatives Definitions
Annex 3: Credit Derivatives Definitions
Annex 4: Commodity Definitions
Annex 5: FpML Coding Scheme
Annex 6: Replication and Market Disruption
Annex 7: Defined Terms for Use with Commission Sharing Agreements
Annex 8: Addressing Discrepancies Between the Confirmation and the Master Agreement
Annex 9: Default Procedures
Annex 10: Additional Termination Events
Annex 11: Additional Representations
Annex 12: Multi-Branch Parties
Annex 13: Representations Regarding Tax Matters
Annex 14: Capital Disruption Events
Annex 15: Additional Termination Events for Transactions with Initial or Variation Margin
Annex 16: Supplement to the 2002 ISDA Equity Derivatives Definitions
Annex 17: Supplement to the 2002 ISDA Interest Rate Derivatives Definitions and Annex to the 2006 ISDA Definitions
Annex 18: Supplement to the 2002 ISDA Commodity Definitions
Section 6, on the other hand, provides for parties to agree on a range of customized terms and conditions that are specific to their derivatives transactions. These provisions include, but are not limited to, governing law, netting provisions, representations and warranties, and payment provisions.
In practice, parties typically only incorporate a limited number of Annexes and Section 6 provisions into their agreements, depending on the type of transaction and the parties` needs. For example, a party engaging in interest rate swaps may only need to use Annex 2, while parties involved in commodity derivatives may only use Annex 4.
One important thing to note about the ISDA 2002 Master Agreement Protocol is that parties are not required to use it. Parties may negotiate their own bespoke agreements, but the standardized document is widely used in the derivatives market as a template to streamline and simplify the negotiation process.
In conclusion, Annexes 1 to 18 and Section 6 of the ISDA 2002 Master Agreement Protocol provide parties with a customizable framework to negotiate their derivatives transactions. By including these provisions, parties can tailor their agreements to suit their specific needs, while also benefiting from the standardized language and streamlined negotiation process provided by the protocol.