The 3 Mistakes Even Advanced ISDA Negotiators Can Make and How to Avoid Them

  1. Which Party Are You?

It is customary for a dealer to act as “Party A” to the ISDA Master Agreement (“ISDA”). Nonetheless, I have come across a few buy-side entities who have the need and ambition to be designated as a “Party A” instead. This is a significant change, one that can have a rather dramatic impact on the rest of the agreement if not handled with care. Therefore, before agreeing to “the switch”, consider why this is needed (if at all) and how would the rest of the contract have to be updated.

  • Who is Authorised to Sign?

Getting your post-execution documents ready in advance is going to save you a lot of time and hassle! This is not too big of a challenge if you’re on the sell-side, as you would have your signing authority handy. If you’re on the buy-side however, you need to get your signing authorities in order, especially if it is the fund’s directors that will be signing. Although their authority would come from the fund’s constitutionals, the brokers often require board minutes to be produced to confirm the directors’ authority not only to bind the fund, but also to enter into the ISDA. It is customary for brokers to request specimen signatures, which can be found on an incumbency certificate – the sooner you can procure this internally the better!

  • Is Registration Required?

If you have entered into a New York Law CSA or an English Law Credit Support Deed with your ISDA, you have created a security interest. Depending on the jurisdiction of the fund, you may be required to either register the security interest with the relevant authority or enter it into the register of mortgages and charges of the company to ensure its validity. The latter is required under companies law in the Cayman Islands. The former applies to companies domiciled in Ireland, for example, where  security created over certain types of asset must be registered in the Irish Company Registration Office within 21 days of creation. To be on the safe side, do check if any of these requirements apply in your circumstances with the relevant departments.

If you’d like any assistance with your trading agreements or have any questions about this article, please feel free to email me at edyta@fitlegalsolutions.com.

Best regards,

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