Section 2, point d) of the ISDA executive contract contains provisions that determine the consequences of imposing a tax on a payment made by a party in connection with a transaction. It includes a gross redemption obligation for certain “compensated taxes.” This is in addition to other provisions of the ISDA management contract, such as tax representations contained in ss 3 (e) and 3 (f), companies of ss 4 (a) and 4 (d) and termination events of ss 5b) (ii) and 5 (b) (iii). These provisions are extremely complex and negotiators generally ensure that the result is not the opposite of what was intended. The UK`s exit from the EU in March 2019 will change this situation. Since “Brexit means Brexit,” the UK will become a third country and, if there is no agreement with the EU on this issue, the decisions of the British courts will no longer be automatically recognised by the rest of Europe. Other procedures must be followed in each country where a party wishes to obtain recognition of a decision taken in the United Kingdom. In France, an execution warrant (exequatur) must be obtained. While it is unlikely that such a procedure is likely to challenge or overturn the decision of the British courts, the mere fact that it is necessary will result in additional delays and delays, resulting in risks that are difficult to bear in transactions where underlying volatility is significant. Derivatives transactions (forwards, swaps, futures or options on financial instruments, currencies, interest rates, commodities, etc.) between two parties are generally documented as part of a framework contract with confirmation for each transaction.
French counterparties can now benefit from the completeness of the ISDA management contract, while maintaining French law. Even if they are not French, two parties will benefit from the use of French law to ensure that court decisions are automatically recognised throughout Europe. For credit institutions, the application of the French Master`s Law Agreement will also avoid the need to introduce “bailout in” recognition clauses made mandatory by the BRRD Directive when a contract is governed by the laws of a third country that the UK will have after Brexit. The main advantages of an ISDA management contract are improved transparency and liquidity. As the agreement is standardized, all parties can study the ISDA master agreement to find out how it works. This improves transparency by reducing the possibility of opacity of leakage provisions and clauses. Standardization by an ISDA executive contract also increases liquidity, as the agreement makes it easier for parties to make repeat transactions. Clarifying the terms of such an agreement saves all parties time and legal fees.
In 1987, ISDA established three documents: (i) a standard form control agreement for U.S. dollar interest rate swaps; (ii) a standard-master contract for multi-currency interest rate and exchange rate swaps (known as the “1987 ISDA Executive Contract”); and (iii) definitions of interest rates and currencies. “i) Each party will make any payment or delivery indicated in any confirmation it must provide, subject to the other provisions of this Agreement.” “If divorced from a reasonable understanding of the purpose of s2 (a)iii) that it must yield more to a construction in accordance with commercial common sense.” The main credit support documents in English law are the 1995 credit support annex, the 1995 credit support instrument and the 2016 credit support annex for the margin of change.