January 25, 2015

ISDA/FOA Addendum | Do you speak legal?

Maria points out a candidate for the longest single derivatives sentance award.

One of the most critical parts of the onboarding process to a Clearing Broker is the review and negotiation of the Clearing Agreements and the document considered to be the market standard for papering the client clearing relationship between clients and clearing members for clearing their OTC derivative transactions, is the ISDA/FOA Client Cleared OTC Derivatives Addendum.

The Addendum aims to amend existing client documentation to allow for clearing of OTC derivatives in compliance with EMIR.It leaves a number of elections open for negotiation between client and clearing member and users should ensure they understand the consequences for them, their cleared OTC derivatives portfolios and their collateral of entering into the Addendum and the legal and operational assumptions which underpin it.

I am not sure at this point how many Buy Siders have actually reviewed and negotiated this document, as mandatory clearing has not yet kicked in for them, but I know one thing. When the time comes to execute it, it will be a painful process. Do you feel that having negotiated ISDAs, GMRAs, GMSLAs and other such Agreements will make things easier for you? Wait until you go through the Addendum, you will change your mind! Are you good at puzzles? That would help a bit…….

Having said that, I have to reveal the real reason behind this post. It's my alter ego (the bad one) that wants to nag!

While going through the Addendum, trying to understand how the pieces of the puzzle fit all together, I came across this huge paragraph where 16 ROWS (for Heaven's sake) form ONE SINGLE SENTENCE. No fullstop, only commas inside. Try to read this and you will be out of breath…….

To all my fellow lawyers out there: Seriously now??????????

Maria Leontiou



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