Collateral Management

CHAPTER 21OTC Derivatives and Collateral – Legal Protection – Master Agreement and Schedule

This chapter describes the purpose of and role played by the OTC derivative-related master agreement, and the associated schedule to the master agreement, covering the circumstances under which such legal documents are utilised between two trading parties.

Please note that the contents of this chapter represent the author’s own view of how the documentation produced by the International Swaps and Derivatives Association (ISDA) is normally used by financial institutions and is not an ISDA official guide of how to understand or to complete or to use such documentation. Readers are advised to take their own legal advice regarding the implementation and use of such documentation.

21.1 INTRODUCTION

The ISDA Master Agreement (IMA) is a commonly used standard for documenting the legal arrangements between two parties that intend trading with one another in a variety of OTC derivative product types, such as interest rate swaps and credit default swaps. The IMA is produced by the International Swaps and Derivatives Association (ISDA) and is designed for use by all organisations that trade in OTC derivatives, around the globe.

Generically, IMAs have been developed and refined over many years to reflect the typically agreed legal terms and conditions that govern bilateral trading relationships in OTC derivatives.

OTC derivatives are used by thousands of companies based in all regions, ...