The press release below came from the FIA, the result of much work between the FIA & ISDA. The resulting document sets out the key rights and obligations between an FCM and it’s clients for clearing OTC (ISDA) products. Follow the link to the ISDA website below to download the documentation for free.
The addendum covers things such as:
- Trades refused for clearing
- Default of the client
- Default of the FCM
Also on the ISDA website is an Execution agreement which covers the early part of the trading process including:
- Submission for clearing
- Rejection from clearing & fallbacks
- Limits notices
- Failure by either party to submit to clearing
- Failure to achieve clearing due to credit limits being breached
- Fallback valuation and remedies
FIA and ISDA Publish Cleared Derivatives Addendum
Washington, D. C., August 29, 2012 – The Futures Industry Association (FIA) and the International Swaps and Derivatives Association, Inc. (ISDA) today announced the publication of the FIA-ISDA Cleared Derivatives Addendum, a template that can be used by U.S. futures commission merchants (FCMs) and their customers to document their relationship with respect to cleared over-the-counter (OTC) swaps.
The Addendum, which is designed to supplement a futures and options agreement between a U.S. FCM and its customer, includes representations for each party to make regarding certain clearing-related matters, such as the treatment of customer collateral. The Addendum also sets forth the close-out methodology for cleared OTC swaps, the triggers for liquidation, and provisions for valuing the terminated trades. In addition, the Addendum contains provisions governing tax issues regarding cleared OTC transactions.
The Addendum was developed with the assistance of both buy-side and sell-side participants in the cleared OTC swap markets, with expertise in both futures and OTC derivatives. Approximately 30 institutions participated in drafting the document.
“The Addendum is an important milestone that will enable customers in the U.S. to access central clearing of OTC derivatives transactions efficiently through the use of market standard documentation,” said ISDA CEO Robert Pickel. “It represents the collaborative efforts of a broad cross-section of market participants and marks another step forward in the global derivatives industry working constructively to reduce counterparty credit risk through the use of central clearing facilities.”
“As the financial industry moves toward central clearing for OTC derivatives transactions, there is a growing need for standard documentation such as this Addendum,” said FIA President and CEO Walt Lukken. “FIA and ISDA express their appreciation to the buy-side and sell-side firms that helped draft this document, and we look forward to further collaboration on industry initiatives such as this.”
The Addendum is designed to be customized by the parties that choose to use it. It includes a Schedule in which the parties can make additional representations or other modifications to the terms of the Addendum. Some customization of the Addendum is likely to be needed to ensure that the Addendum interacts with the parties’ underlying futures agreement in the manner they desire. The FIA and ISDA recognize that certain provisions of the Addendum may need to be altered in light of future regulatory developments. As additional reforms are adopted and implemented, market participants should consider whether modifications to the Addendum are necessary or appropriate.
The FIA-ISDA Cleared Derivatives Addendum is available at: