ISDA Master Agreement

The ISDA MASTER AGREEMENT is the most commonly used master service agreement for OTC derivatives transactions internationally. It is part of a framework of documents, designed to enable OTC derivatives to be documented fully and flexibly. The framework consists of a master agreement, a schedule, confirmations, definition booklets, and credit support documentation. The ISDA master agreement is published by the International Swaps and Derivatives Association.

The master agreement is a document agreed between two parties that sets out standard terms that apply to all the transactions entered into between those parties. Each time that a transaction is entered into, the terms of the master agreement do not need to be re-negotiated and apply automatically.

Although it is often viewed as a tool for banks and financial institutions, the Master Agreement is widely used by a wide variety of counterparties.

The master agreement is quite lengthy, and the negotiation process can be burdensome, but once a master agreement is signed, the documentation of future transactions between parties is reduced to a brief confirmation of the material terms of the transaction.

The master agreement also aids in reducing disputes by providing extensive resources defining its terms and explaining the intent of the contract, thereby preventing disputes from beginning as well as providing a neutral resource to interpret standard contractual terms. Finally, the master agreement greatly aids in risk and credit management for the parties.

The ISDA Master Agreement is a development of the Swaps Code, introduced by ISDA in 1985 and updated in 1986. In its earliest form, it consisted of standard definitions, representations and warranties, events of default, and remedies.

In 1987, ISDA produced three documents: (i) a standard form master agreement for U.S. dollar interest-rate swaps; (ii) a standard form master agreement for multi-currency interest-rate and currency swaps (collectively known as the "1987 ISDA Master Agreement"); and (iii) the interest rate and currency definitions.

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