The International Swaps and Derivatives Association has circulated a pre-publication draft of an agreement, which updates ISDA documents to work with the 2002 master agreement. Definitions and supplements drawn up before the 2002 master often refer to the 1992 master agreement, which could pose problems if the counterparties have signed the 2002 docs. The ambiguity stems from having to decide whether to enforce the 1992 agreement or select the equivalent outcome in the 2002 agreement, according to John Berry, associate at Allen & Overy in London and who assisting ISDA with drafting of the protocol.
Berry said this has the potential to be the most widely adhered to ISDA protocol yet. Around 1,100 legal entities put their names to the European Monetary Union protocol in 1998, noted Berry, adding, this one affects far more institutions in the U.S. and Asia.
The protocol is expected to be printed later this month. Derivatives users, both ISDA members and non-members, will have until spring to sign the agreement. Users can also sign the protocol in expectation that they sign a 2002 agreement. The protocol is only enforceable if both counterparties to a trade have signed it.
The protocol does not deal with controversial issues, it is just tying up the technical side, noted Berry.
