The International Swaps and Derivatives Association, together with the International Capital Market Association, is looking to raise awareness of documentation discrepancies between terms for notes and embedded derivatives.
Legal officials at European firms say they are increasingly concerned about differences between calculation agents' terms on note-plus-derivative structures, such as equity, credit or fund-linked notes. Because the issuer of the note may be different to the derivative provider, the discretions available to the calculation agents on the note and derivative may be contradictory.
"Sometimes there is a tension between the calculation agents," said one in-house counsel. For example, the terms of the note may say that payment will take place come what may, whereas the terms of the derivative contract give the provider discretion regarding payment in situations such as a corporate event or a merger.
No date has yet been fixed for the paper's publication, but Richard Metcalfe, ISDA's senior policy director, said it is in the advanced stages of editing. "It's a matter of raising awareness as to the issues," he added. ICMA officials could be reached for comment by press time.
