The Managed Funds Association, an alternative investment trade group with 700 members, has slammed the International Swaps and Derivatives Association for ignoring a series of letters and e-mails in which it outlined to the derivatives industry body concerns over proposed changes to the 1992 ISDA master agreement. The MFA is worried that changes to the documentation will heavily favor sellside firms.
In several letters and e-mails, the most recent dated April 2, MFA President John Gaine told ISDA that three of the eight proposed amendments to the master agreement "disproportionately favor dealers to the detriment of end users and may have the unintended consequence of increasing, as opposed to decreasing, systemic risk." ISDA, said Gaine, did not respond. To read the letters, click here.
Robert Pickel, ISDA executive director in New York, conceded that ISDA never directly responded to the MFA's letters, but asserts the association addressed the MFA's concerns at an August meeting in Washington. "We've tried to address everyone's concerns," said Pickel, adding that those MFA concerns that were not addressed now would likely be revisited in the next 12 months, when ISDA considers revamping the entire master agreement.
However, the MFA disputes this interpretation. "[ISDA is] drafting this from the dealers side. They weren't looking to sit down with us and work things out," complained Pat McCarty, MFA general counsel in Washington. He continued, "[ISDA] don't even have the decency to send us a written response. We've gone to the trouble of writing a letter to them and they've thumbed their nose at us. I wonder if they even really care about customers."
ISDA, which began a review of the master agreement last year, was expected to begin the protocol process this week, but as of last Thursday was leaning toward pushing it back a few weeks in the wake of the terrorist attacks in the U.S. The protocol process will entail ISDA working with dealers and end users to incorporate amendments into its trade agreements.
Not every end user shares the MFA's sense of injustice. William Miller, independent risk oversight officer for the End Users of Derivatives Council of the Association of Financial Professionals, which organized the August meeting in Washington, said he is "very encouraged" by the attention ISDA paid to end user concerns at the August meeting. He added that ISDA is beginning to realize that in the future it needs to consider end users before it begins drafting changes.
Click here to download the letters in PDF format.