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Netting and Collateral
A Master Agreement has established international contractual standards governing privately negotiated derivatives transactions that reduce legal uncertainty and allow for reduction of credit risk through netting of contractual obligations. Ensuring the enforceability of the netting provisions of the ISDA Master Agreement remains a key initiative for the Association.
The scope of the ISDA opinions address the enforceability of the termination, bilateral close-out netting and multibranch netting provisions of the 1992 and 2002 Master Agreements. Opinions are updated annually to comply with requests from various central banks. In addition, ISDA also solicits legal opinions on the enforceability of the ISDA Credit Support Documents in various jurisdictions, also updated on an annual basis.
Public netting documents
To access either of the following documents please click on the relevant link below:
Benefits of Close-out Netting of Derivative Transactions - June 29, 2016
2006 ISDA Model Netting Act, Version 2 - October 10, 2007
Memorandum on the Implementation of the Model Netting Act - March 1, 2006
Client Clearing Opinions
- Principal to Principal Model (P2P)
ISDA has addressed the enforceability of the close-out, set-off and default provisions of the ISDA/FIA Client Cleared OTC Derivatives Addendum (the "P2P Addendum") when used in conjunction with the form of the Master Agreement. The P2P Addendum works in conjunction with an existing master agreement to facilitate the standardised documentation of client clearing and to support delivery of the client protections used by central counterparties on the default of a clearing member. The P2P Addendum operates on the principal-to-principal client clearing model and is designed to operate on a cross CCP basis in conjunction with any non-US CCP that adopts a client clearing structure capable of being used with the P2P Addendum.
ISDA opinions are produced either for reliance by a Clearing Member (CM) entering into a P2P Addendum with a Client located in a particular jurisdiction or for reliance by a Client entering into a P2P Addendum with a CM located in a particular jurisdiction.
ISDA is also currently in the process of commissioning a number of clearing related legal opinions to assist ISDA members to apply the risk weightings under CRR Article 305. One of the conditions to apply the reduced risk weightings under Article 305 is that the client of a clearing member has a legal opinion that it would bear “no losses” on account of the insolvency of its clearing member or any of the clearing member’s clients under the laws of the jurisdiction of various related entities. A modular architecture will be used to prepare these opinions.
ISDA and FIA jointly commission and publish, for the benefit of their members, legal reviews addressing the enforceability of a US registered FCM’s close out and netting rights vis-à-vis its customers in various jurisdictions under the FIA-ISDA Cleared Derivatives Addendum. These legal reviews are based on assumptions regarding the content of the underlying futures and options agreement that is supplemented by the FIA-ISDA Cleared Derivatives Addendum between an FCM and a customer.
ISDA and FIA also commission and publish for the benefit of their members, legal reviews addressing the ability of customers to net against their respective FCMs when using the FIA-ISDA Cleared Derivatives Addendum and against three CCPs that support the FCM model of clearing (CME, ICE and LCH).
ISDA OPINIONS LIBRARY
The opinions made available by ISDA to ISDA members do not incur any additional charges and are a membership benefit provided by ISDA.
Please note that each opinion will have various assumptions and qualifications relevant to the jurisdiction and analysis provided and therefore each opinion must be read in detail before relying on the conclusions reached within such opinion.