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Robert Pickel Executive Director and Chief Executive Officer ISDA

International Swaps and Derivatives Association, Inc. Understanding the 1992 ISDA Master Agreements New ISDA Master Agreement Hotel Inter-Continental Sao Paulo, Brazil August 6 , 2002. Robert Pickel Executive Director and Chief Executive Officer ISDA. New ISDA Master Agreement.

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Robert Pickel Executive Director and Chief Executive Officer ISDA

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  1. International Swaps and Derivatives Association, Inc.Understanding the 1992 ISDA Master AgreementsNew ISDA Master AgreementHotel Inter-Continental Sao Paulo, BrazilAugust 6, 2002 Robert Pickel Executive Director and Chief Executive Officer ISDA

  2. New ISDA Master Agreement • Genesis in ISDA’s “Strategic Documentation Review” • A review of certain elements of ISDA’s documentation architecture following market difficulties in 1997 and 1998 • ISDA working groups addressed: • termination, valuation and close-out issues • force majeure and impossibility • master agreement structural issues – leading to publication of Cross-Agreement Bridge

  3. New ISDA Master Agreement Termination, Valuation and Close-Out Issues Changes to Sections 5 and 6: • Grace Periods • Market Quotation, Loss, Replacement Value and Close Out Amount

  4. New ISDA Master Agreement: Grace Periods • Grace Periods • shorter grace periods • Failure to Pay or Deliver (Section 5(a)(i)): one Local Business Day • Bankruptcy (Section 5(a)(vii)) : 15 Calendar Days • Default under Specified Transaction (Section 5(a)(v)): one Local Business Day

  5. New ISDA Master Agreement: Market Quotation, Loss and Replacement Value • Should there be a single valuation method, or a choice between two methods? • End User concerns about consistency of application • A working group has been created to draft a new definition “Close Out Amount”

  6. New ISDA Master AgreementClose Out Amount • Close Out Amount overriding principle is good faith and commercial reasonableness. • combines elements of both Market Quotation and Loss • maximizes flexibility of Non-defaulting Party • does not require strict procedures of Market Quotation

  7. New ISDA Master Agreement Illegality and Force Majeure • Illegality: events beyond parties’ control that result from changes in laws or government orders: Section 5(b)(i) • Force Majeure Event: events beyond parties’ control that fall outside Illegality but still hinder or prevent performance of party’s obligations: Section 5(b)(ii)

  8. New ISDA Master Agreement: Illegality and Force Majeure • Illegality and Force Majeure Event: • Subject to waiting period – only becomes Termination Event once waiting period expires • Illegality waiting period: three Local Business Days • Force Majeure Event waiting period: eight Local Business Days

  9. New ISDA Master Agreement: Other Proposed Changes • Expanded definition of “Specified Transaction” (relevant for purposes of Default under Specified Transaction) • Interest and compensation provisions: consolidate and rationalize? • Notices NY:36010.2

  10. New ISDA Master Agreement: Other Proposed Changes • New Master Agreement will also likely: • Delete first method • Include a set-off clause

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