technical Update Extra (TT Oct04 p49-50)

Existing beliefs relating to ISDA documentation should be questioned. It is not necessarily “standard form” and banks do not always provide “accurate contracts” suitable for non-bank users. Beliefs regarding the documentation’s logic, and the stability of derivatives law/documentation should also be questioned. A professional legal review is essential in most cases. A “holistic” approach that takes account of existing relationship/finance documentation between corporates and their banks as well as the swap documentation is recommended. Structural issues such as the form the documentation takes as well as the extent and scope of collateral arrangements must be considered. Default sensitivity should also be examined on both sides – that of the corporate and that of the bank. Corporates should consider their relationships with their banks in terms of borrowings and deposits when drafting the ISDA documentation they enter.

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