The International Swaps and Derivatives Association (ISDA) and FIA Europe have jointly published a European Cleared Derivatives Execution Agreement for principal-to-principal client clearing.
The document can be used as a template for market participants when negotiating execution agreements under English law for swaps that are intended to be cleared by central counterparties located outside of the US, the associations say.
It was developed in conjunction with a working group of both buy- and sell-side institutions in the European cleared over-the-counter (OTC) derivatives markets.
Robert Pickel, ISDA CEO, says: “A huge amount of progress has already been made in moving to central clearing, contributing to safer, more efficient markets. But with the first clearing mandates expected to come into force in Europe late this year or early in 2015, it’s becoming increasingly important that standard documentation exists outside of the US to help all market participants continue the transition to clearing.”
The agreement sets out the rights and obligations of each counterparty to any trade that is intended to be cleared.
In addition, it describes the process for submitting trades to a clearing house, as well as the fall-back provisions available in case a transaction is not accepted for clearing.
The associations add that participants can use the agreement and amend it as necessary to reflect their own circumstances, and they may also use it in conjunction with the ISDA/FOA client cleared OTC derivatives addendum.
“This agreement represents the latest successful step forward by the industry in the risk management of its cleared swaps business,” says Simon Puleston Jones, FIA Europe CEO. “It stands as a testament to what can be achieved through the collaborative efforts of the members of FIA Europe and ISDA to further standardise documentation across the market, for the mutual benefit of both sell- and buy-side participants.”