The planned 2002 ISDA Master Agreement will include a new definition of the close out amount and will add a force majeure termination event. Richard Tredgett, partner at Allen & Overy in London, said the new definition of the close out amount is the most important change because the market quotation requirement is seen as too strict a procedure and in market turmoil it is difficult to obtain quotations. In the new close out definition, the overriding principle is good faith and commercial reasonableness, Tredgett explained, adding that it combines elements of both market quotation and loss, maximizes flexibility of the non-defaulting party and does not require strict procedures of market quotation.
The force majeure event will be added to the definitions alongside the existing illegality event, which covers events beyond parties' control that result from changes in laws or government orders, Tredgett noted.
Tredgett focused mostly on these two changes during his presentation at the conference, but added that the documentation committee would also be looking to remove the 'first method' for valuing derivatives, include a contractual set-off clause, rationalize interest and compensation provisions, update tax provisions and update the jurisdiction clause. He did not elaborate on these changes.
