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The New ISDA 2002 Master Agreement

The International Swaps and Derivatives Association, Inc announced the publication of the 2002 Master Agreement, the successor to the 1992 (Multicurrency-Cross Border) Master Agreement. The effort to revise the 1992 Master Agreement was started by ISDA in early 1999 (through the Strategic Documentation Review) in respect of certain key aspects of the ISDA documentation. The review led to the publication of various standard form amendments to the 1992 Master Agreement (e.g. close-out, illegality and force majeure) and ended with the publication of the 2002 Master Agreement. The use of the 2002 Master Agreement is not mandatory and so far, there has not been a rush to adopt it.

The structure of the Master Agreement has remained unchanged. However, there have been changes in the detail of some provisions. This article highlights some of the more important changes (but shall not be taken as an exhaustive guide):

Other amendments include:

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Derivatives, capital markets and more.

Close-out Amount

Market Quotation (i.e. quotations from reference dealers) and Loss (i.e. a party’s own estimation of its losses) were used in the 1992 Master Agreement as measures of the payment to be made by a party to the other if Early Termination Date is designated. These terms are replaced with a single Close-out Amount in the 2002 Master Agreement. In addition, the Determining Party is now (if she was not previously) expected to act in good faith and use commercially reasonable procedures. Section 14 contains a long list of information that the Determining Party may take into account to help her to act in good faith and use commercially reasonable procedures. This information includes quotations, relevant market data received by the Determining Party from external sources or available from internal sources. Commercially reasonable procedures include valuation models used in the Determining Party’s course of business in valuing similar transactions with unrelated counterparties. Different valuation models may be used depending on e.g. the type, complexity and size of the Terminated Transactions. Costs or other losses may be taken into account as long as there is no duplication in the calculation.

Force Majeure Event

A new Termination Event, Force Majeure Event, has been introduced into the 2002 Master Agreement. It addresses the occurrence of events beyond the fault of the parties such as an act of state which prevents the performance in accordance with the agreement. The 2002 Master Agreement also introduces the concept of a Waiting Period which prevents the parties from terminating the Affected Transaction unless performance remains unlawful, impossible or impractical after the expiration of the Waiting Period. The Waiting Period is 8 Local Business Days in respect of Force Majeure Event and 3 Local Business Day in respect of Illegality.


First Method

It appears that the First Method is now rarely used and a decision has been taken to remove the same from the 2002 Master Agreement.

Default Interest

The 2002 Master Agreement now contains complicated provisions addressing compensation for default in deliveries and payment depending on the circumstances of default.


Although the 1992 Master Agreement does not have a set-off clause, most parties would include such a provision in the Schedule. This change merely reflects such a practice.

Event of Default

The grace period for failure to pay or deliver has been reduced to one Local Business Day (in the case of a payment) and one Local Delivery Day (in the case of a delivery) from the previous three Local Business Days.
Repudiation of Agreement (which includes the Master Agreement, a Confirmation or a Transaction) has been added to 5(a)(ii) as an Event of Default. “Specified Transaction” has been expanded to include new types of transactions in case there is any doubt whether these are covered by the definition in the 1992 Master Agreement. Cross Default (Section 5(a)(vi)) has also been amended to the effect that the amounts in respect of (a) default resulting in acceleration and (b) failure to pay when due may be aggregated in determining the Threshold Amount.

If you would like to discuss any of the above, please do not hesitate to contact us at [email protected].

Please also refer to our other articles in the series:

The 2002 Master Agreement Protocol
The New 2003 Credit Derivatives Definitions
The New 2002 Equity Derivatives Definitions
May 2003 Guarantee Supplement

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