1992 ISDA Master Agreement: Analyzing Market Quotation, Set-Off and Loss

Abstract:     
This paper analyzes key clauses relevant to valuation in the 1992 ISDA Master Agreement. The paper focuses principally on the section 14 definitions of: Market Quotation and Loss and on ISDA’s Basic Set-off Provision which is frequently added via the Master Agreement Schedule. Additional clauses considered relate to: First and Second Method, Payments on Early Termination, Settlement Amount, Pre-Estimate, Terminated Transactions, Affected Transactions, Termination Events, One and Two Affected Parties, Reference Market-makers, Unpaid Amounts, Calculations and Settlement. The paper highlights both the richness and complexity of specific valuation-related clauses in the 1992 ISDA Master Agreement and in the structure and interpretation of the Master Agreement as a whole. The paper concludes with c.20 additional student drafting questions.

Keywords: ISDA, Valuation, Derivative, Market Quotation, Loss, Set-Off, Master Agreement

JEL Classification: F31, G12, G13, G15, G33, K12, K22, N20

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