Isda Master Agreement Specified Transaction

The ISDA Master Agreement Specified Transaction – Explained

The International Swaps and Derivatives Association (ISDA) is a global organization that sets the standards for over-the-counter (OTC) derivatives markets. The ISDA Master Agreement is a standardized contract that outlines the terms and conditions of OTC derivatives transactions between two parties. This agreement is widely used in the financial industry to reduce legal and credit risks for both parties.

Within the ISDA Master Agreement, a specified transaction refers to a specific type of derivatives transaction that is defined in a schedule to the agreement. This schedule sets out the terms specific to that transaction, including the type of derivative, the underlying asset, and the payment and settlement terms.

Specified transactions can include interest rate swaps, currency swaps, credit default swaps, and many more. Each transaction is specified in its own schedule, meaning that parties can enter into multiple transactions using the same ISDA Master Agreement.

The advantage of using specified transactions is that it allows for greater customization of the derivatives contract. The parties can agree on specific terms that are tailored to their needs, which can help to reduce counterparty risk and improve liquidity.

One notable feature of the ISDA Master Agreement is its netting provision. Netting allows for the offsetting of gains and losses between multiple transactions. For example, if a party has a gain in one transaction and a loss in another, the two can be netted out, reducing the actual amount that needs to be paid.

Overall, the ISDA Master Agreement specified transaction is a powerful tool for managing risk in the OTC derivatives market. By providing a standardized and customizable agreement, it helps to reduce legal and credit risks, while allowing for greater liquidity and flexibility.