2025-04-22 Meeting notes
- Elisa Kendall
Date
Apr 22, 2025
Participants
@Elisa Kendall
@Pete Rivett
@John Gemski
Discussion
Today we continued the discussion about master agreements. John will review the current derivatives master agreement ontology to get a sense of what’s there as a starting point.
In the ontology, we have construction loan and derivative transaction master agreement. Questions: (1) are ISDA master agreements limited to transactions, or is the notion of an ISDA master agreement broader than that? (2) financial services master agreement is missing - is that needed? Is a brokerage agreement a master agreement? (3) what characteristics are specific to a financial services master agreement that are not specific to other kinds of master agreements? (4) what characteristics are specific to a derivatives master agreement?
From CoPilot:
There are several types of master agreements used in the context of securities and financial instruments, similar to the ISDA Master Agreement. Here are a few examples:
Master Securities Loan Agreement (MSLA): This agreement governs securities lending transactions, where one party lends securities to another in exchange for collateral. It outlines terms like collateral requirements, default provisions, and settlement processes.
Master Repurchase Agreement (MRA): Used in repurchase (repo) transactions, this agreement sets the terms for the sale and subsequent repurchase of securities, often used for short-term borrowing.
Master Securities Forward Transaction Agreement (MSFTA): This agreement is used for forward-settling transactions, such as those involving mortgage-backed securities. It includes provisions for margining, default remedies, and other key terms.
Global Master Repurchase Agreement (GMRA): Similar to the MRA, this agreement is widely used internationally for repo transactions and provides a standardized framework for these trades.
Global Master Securities Lending Agreement (GMSLA): This agreement is used for securities lending on a global scale, providing a standardized framework for cross-border transactions.
These agreements are designed to provide legal clarity, reduce counterparty risk, and streamline transactions in their respective markets.
The ISDA Master Agreement has several specific properties that make it unique and widely used in derivatives trading:
Single Agreement Framework: All transactions under the ISDA Master Agreement are treated as part of a single agreement, which allows for netting of obligations in the event of default or termination.
Standardized Terms: It provides a consistent structure and language for derivatives contracts, reducing negotiation time and ensuring clarity.
Customizable Schedule: Parties can tailor certain terms through a schedule, allowing flexibility to address specific needs.
Close-Out Netting: In the event of default, the agreement allows for close-out netting, where all outstanding transactions are terminated and netted to determine a single payment obligation.
Credit Support Annex (CSA): The CSA is an optional addendum that governs collateral arrangements, enhancing credit risk management.
Termination Events: It includes provisions for termination events, such as bankruptcy or changes in tax laws, which can trigger the early termination of transactions.
Elisa will investigate cleaning up some of the circularity as time permits.