Marcus Evans Counterparty Clearing Workshop
Sutherland attorney Warren Davis presented ""Advanced OTC Documentation Relevant to CCPs"" at the Marcus Evans Counterparty Clearing Workshop. The Presentaton covered:
• A round peg in a square hole—the difference between cleared swaps and futures
• We are not in “ISDA-land” any more—risks associated with futures, cleared and uncleared
• Safety of Customer Collateral—fellow-customer risk; investment risk and operational risk.
The fallout from MF Global
• Interplay of three agreements contemplated for cleared swaps in the US—FIA/ISDA Cleared
Derivatives Execution Agreement; Futures Customer Account Agreement; FIA Cleared
Derivatives Transaction Addendum
• Why do we need an Execution Agreement? Structure of the Execution Agreement.
Transactions not accepted for Clearing—who pays. Impact of CFTC final rules baring trilateral
or quadrilateral Execution Agreements.
• The clearing relationship—documentation for cleared swaps is built upon underlying Futures
Customer Account Agreements. Key features and provisions to negotiate.
• The Cleared Derivatives Transaction Addendum modifies the Customer Account Agreement to
accommodate the clearing of swaps.
• A model Cleared Derivatives Transaction Addendum is currently being developed by the FIA
• Key provisions of the Addendum—representations and warranties of customer and FCM:
“Applicable Law” defined; transactions not accepted for clearing; limitations of liability;
transfer/porting of positions; close-out of customer positions upon default; allocation of tax
• Potential Addendum negotiation issues—events of default and cure periods; position limits;
timing of margin requirements and limits on margin above clearing house requirements;
clearing member “accountability events”; and affiliate issues.
• Timing issues—when must these agreements be in place? Should we be negotiating now?
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