The International Swaps and Derivatives Association (ISDA) is an organization that was established in 1985 to standardize the documentation and practices of the global derivatives market. One of the most significant agreements that the organization has published is the 2002 ISDA Master Agreement.
The 2002 ISDA Master Agreement is a standardized contract that is used between two parties that engage in derivatives transactions. It outlines the terms and conditions of the transaction, including payment terms, collateral requirements, and termination events. This agreement is widely used in the global over-the-counter (OTC) derivatives market.
The 2002 ISDA Master Agreement was developed to replace the original 1992 agreement, which had become outdated due to changes in the derivatives market. The new agreement introduced several key changes, including the addition of two new termination events (Illegality and Force Majeure) and the introduction of a standardized Credit Support Annex (CSA).
The CSA is an important component of the 2002 ISDA Master Agreement because it sets out the collateral requirements in the event of a default by one of the parties. The CSA allows the parties to agree on the types of collateral that can be used, how the collateral will be valued, and how it will be transferred between the parties.
The 2002 ISDA Master Agreement has been widely adopted by the derivatives market due to its clarity and standardization. It has also been recognized by regulators as a tool for reducing risk in the derivatives market, as it provides a standardized framework for managing counterparty risk.
For those interested in reading the 2002 ISDA Master Agreement, a PDF version is available on the ISDA website. It is important to note that the agreement is a legal document and should only be entered into after careful consideration and review by legal professionals.
In conclusion, the 2002 ISDA Master Agreement is an important document in the global derivatives market. Its standardized framework has helped to reduce risk and increase transparency in the market. A PDF version of the agreement is available on the ISDA website for those who wish to read it.