Download This PaperEligible Financial Contracts and the Many Faces of Derivatives: A Brief History of the ISDA Master Agreement
Annual Review of Insolvency Law
46 Pages Posted: 30 Apr 2020
Date Written: 2015
Abstract
Through the introduction of the notion of “eligible financial contracts” in Canadian insolvency laws in the 1990s, derivative instruments of various kinds have been afforded special treatment in insolvency proceedings. Far from being a Canadian peculiarity, the creation of legislative safe harbors for derivatives has been a global trend. Since its inception in 1985, the International Swaps and Derivatives Association (ISDA) has devoted much energy in promoting and securing the validity of close-out netting, the legal technique on which rest most eligible financial contracts, in various jurisdictions worldwide. Considering the very effective role of ISDA both as a global advocate for reforms and as a frequent reference in judicial decision-making, this paper takes a closer look at ISDA’s contractual documentation, in order to provide a better sense of the implications of its exceptional treatment under insolvency laws. Part II offers an evolutionary perspective on the Master Agreement since the formation of ISDA in 1985. It shows that one major impulse of the evolution of ISDA’s documentation has been the will to progressively expand the range of instruments covered by the Master Agreement, so that an ever-increasing number of business management problems can find a solution in derivatives markets. Part III examines the various uses of derivatives instruments through a sample of the case law generated by swaps and other over-the-counter derivatives. These cases draw an illuminating picture of how these financial instruments are actually used and of the kind of balance they achieve between contracting parties, as well as their potential impact on other stakeholders. Part IV focuses on contractual issues directly relevant to insolvency proceedings. It suggests that the special value of the ISDA Master Agreement lies less in the certainty than in the discretion it provides to its non-defaulting parties, and that this should be a cause of concern in bankruptcy matters.
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Pascale Cornut St-Pierre (Contact Author)
University of Ottawa - Civil Law Section ( email )
57 Louis Pasteur Dr
Ottawa
Canada
HOME PAGE: http://https://droitcivil.uottawa.ca/en/people/cornut-st-pierre-pascale