Saturday, June 6, 2020

ISDA Negotiation Explained.

October 19, 2019 by  
Filed under Business, Education, Opinion, Weekly Columns

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( The ISDA negotiator has an integral role to play when organizing agreements that allow the trade of derivatives between two parties. There are two different types of derivatives. You have those that are listed i.e. traded on exchanges. However, you also have OTC (over the counter) derivatives. These are traded privately with a direct relationship taking place between the two parties i.e. banks, corporations and funds. This is where the ISDA negotiator comes into place.

Before delving into the role of the negotiator it is important to determine what ISDA actually is. This term stands for International Swaps and Derivatives Association. It is a global organisation who has the role of maintaining the industry standard when it comes to the trading of over the counter derivatives. It also aims to reduce credit and legal risk as well. 

The organisation has actually devised templates that can be utilised for the agreements required in the trading of derivatives. This includes a Master Agreement and several other documents. Nonetheless, these are of course templates and thus in practise they will be customised in order to suit the deal in question. This is where financial managers and investment managers come in. Read this fee study for some more information on the costs of this.

Now, let’s get into ISDA negotiation. What is the role of the negotiator? Well, both parties involved in the trading will need to bring in one (or more) negotiators who will work out the details of the agreement. This is a crucial role as there are often several substantial points that will need to be negotiated, agreed upon and customised as well. Essentially, each party is obviously going to have their preferred terms. At the end of the day, both sides want to get the best out of the deal for them. Your negotiator will be reasonable for ensuring you get the most favourable terms in the agreement. As you can see; their role is a pressured and important one because your fate will essentially be in their hands.

In addition to this, the negotiator also has an imperative role to play when it comes to pushing for the most favourable provisions in the instance that the other party will default. After all, this is a big worry for many. Each party will be extremely concerned with regards to whether the other trade party will keep to their agreement and avoid defaulting. The negotiator needs to make sure that he or she reaches an agreement whereby the organisation that is being represented will be protected should the worst case scenario take place.

A professional involved in ISDA negotiation should definitely have special training in this area. They also need to have thorough knowledge regarding the financial product involved in the trading. Nevertheless, they are not required to be fully qualified lawyers, yet it would be advisable to go for an individual who has legal training. It goes without saying that experience is a must.

There is little denying the fact that the role of an ISDA negotiator is an extremely important one. If you ever need to employ someone in this profession then it is unquestionably a decision that needs to be made with monumental care. 

Staff Writer; Steve Wall

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