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John Berry ISDA

International Swaps and Derivatives Association, Inc. DRAFT 2001 ISDA Cross-Agreement Bridge 22nd May, 2001. John Berry ISDA. ISDA Cross-Agreement Bridge. Variety of agreements in parties’ trading relationship:. ISDA Master Agreement. Overseas Securities Lender’s Agreement.

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John Berry ISDA

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  1. International Swaps and Derivatives Association, Inc.DRAFT 2001 ISDA Cross-Agreement Bridge22nd May, 2001 John Berry ISDA

  2. ISDA Cross-Agreement Bridge Variety of agreements in parties’ trading relationship: ISDA Master Agreement Overseas Securities Lender’s Agreement EFET - General Agreement Global Master Repurchase Agreement International Foreign Exchange Master Agreement Nordic Association - Financial Energy Master Agreement Master Repurchase Agreement EFAA - Grid Trade Master Agreement International Currency Options Market Master Agreement FOA Master Netting Agreement European Master Agreement Master Securities Loan Agreement ISDA

  3. ISDA Cross-Agreement Bridge Using a “Master Master” Cross-Product Master Agreement ISDA GMRA OSLA MRA ISDA

  4. ISDA Cross-Agreement Bridge Using the ISDA Master Agreement as a “Master Master” ISDA Master Agreement plusBridge GMRA OSLA MRA ISDA

  5. ISDA Cross-Agreement Bridge Scenario 1 1. Parties X and Y have entered into the following agreements: ISDA Master AgreementGMRA 2. ISDA Master Agreement includes Bridge 3. GMRA specified as Bridged Agreement 4. Standard Bridging Events apply (i.e. all Events of Default under the ISDA Master Agreement) 5. Event occurs that constitutes, with respect to Party X, an Event of Default under the ISDA Master Agreement and an event of default under the Bridged Agreement (GMRA) ISDA

  6. ISDA Cross-Agreement Bridge Party Y may close out transactions outstanding under the ISDA, and: (a) rely on the provisions of the Bridge, which: (i) deem the event to constitute an Event of Default under the GMRA; (ii) provide for transactions under the GMRA to be closed out and valued in accordance with the GMRA; and (iii) provide for the net close-out amount due in respect of those transactions to be included in the Section 6 close-out mechanics of the ISDA as Unpaid Amounts; or (b) promptly notify Party X that the Bridge will not apply and close out (or not) transactions outstanding under the GMRA pursuant to the provisions of the GMRA itself ISDA

  7. ISDA Cross-Agreement Bridge If Party Y chooses option (a), it may achieve a form of cross-product netting. Only the Settlement Amount due under the ISDA (taking into account the net close-out amount due in respect of transactions under the GMRA) will be payable to, or by, Party Y: Derivative transactions Repo transactions ISDA GMRA Section 6 close-out mechanics (USD 15m due to Party Y in respect of derivative transactions) GMRA net close-out amount (USD 10m due to Party X) ISDA Settlement Amount:USD 5m due to Party Y ISDA

  8. ISDA Cross-Agreement Bridge If Party Y chooses option (b), and closes out transactions under both the GMRA and the ISDA, it will not achieve a net close-out position. Two different amounts will be due, at least one of which might be due to Party X, which could be insolvent: Repo transactions Derivative transactions GMRA ISDA GMRA net close-out amount: USD 10m due to Party X ISDA Settlement Amount:USD 15m due to Party Y RESULT: Party Y may have to pay USD 10m to Party X’s insolvency estate, and claim in the insolvency for USD 15m ISDA

  9. ISDA Cross-Agreement Bridge Scenario 2 1. Parties X and Y have entered into the following agreements: ISDA Master AgreementGMRA 2. ISDA Master Agreement includes Bridge 3. GMRA specified as Bridged Agreement 4. Standard Bridging Events apply (i.e. all Events of Default under the ISDA Master Agreement) 5. Event occurs that constitutes, with respect to Party X, an Event of Default under the ISDA Master Agreement, but NOT an event of default under the Bridged Agreement (GMRA) ISDA

  10. ISDA Cross-Agreement Bridge Party Y may close out transactions outstanding under the ISDA, and: (a) rely on the provisions of the Bridge, which: (i) deem the event to constitute an Event of Default under the GMRA; (ii) provide for transactions under the GMRA to be closed out and valued in accordance with the GMRA; and (iii) provide for the net close-out amount due in respect of those transactions to be included in the Section 6 close-out mechanics of the ISDA as Unpaid Amounts; or (b) promptly notify Party X that the Bridge will not apply, in which case it will be unable to close out transactions outstanding under the GMRA ISDA

  11. ISDA Cross-Agreement Bridge If Party Y chooses option (a), it may achieve a form of cross-product netting. Only the Settlement Amount due under the ISDA (taking into account the net close-out amount due in respect of transactions under the GMRA) will be payable to, or by, Party Y: Derivative transactions Repo transactions ISDA GMRA Section 6 close-out mechanics (USD 15m due to Party Y in respect of derivative transactions) GMRA net close-out amount (USD 10m due to Party X) ISDA Settlement Amount:USD 5m due to Party Y ISDA

  12. ISDA Cross-Agreement Bridge If Party Y chooses option (b), it will not be able to close out transactions outstanding under the GMRA. It may, of course, close out transactions outstanding under the ISDA: Repo transactions Derivative transactions GMRA ISDA ISDA Settlement Amount:USD 15m due to Party Y ISDA

  13. ISDA Cross-Agreement Bridge Scenario 3 1. Parties X and Y have entered into the following agreements: ISDA Master AgreementGMRA 2. ISDA Master Agreement includes Bridge 3. GMRA specified as Bridged Agreement 4. Standard Bridging Events apply (i.e. all Events of Default under the ISDA Master Agreement) 5. Event occurs that constitutes, with respect to Party X, an event of default under the Bridged Agreement (GMRA), but NOT an Event of Default under the ISDA Master Agreement ISDA

  14. ISDA Cross-Agreement Bridge Party Y may close out transactions outstanding under the GMRA, in accordance with the provisions of the GMRA, but: (a) the Bridge will not apply (a Bridging Event has not occurred); and (b) it may not close out transactions outstanding under the ISDA ISDA

  15. ISDA Cross-Agreement Bridge If Party Y chooses to close-out transactions under the GMRA: Repo transactions Derivative transactions GMRA ISDA GMRA net close-out amount: USD 10m due to Party X ISDA

  16. ISDA Cross-Agreement Bridge Scenario 4 1. Parties X and Y have entered into the following agreements: ISDA Master AgreementGMRA 2. ISDA Master Agreement includes Bridge 3. GMRA specified as Bridged Agreement 4. Only Bridging Event is Bankruptcy Event of Default under Section 5(a)(vii) of the ISDA Master Agreement 5. Event occurs that constitutes, with respect to Party X, an Event of Default under the ISDA Master Agreement (but NOT a Bridging Event), andan event of default under the Bridged Agreement (GMRA) ISDA

  17. ISDA Cross-Agreement Bridge The Bridge will not apply. Party Y may: (a) close out transactions outstanding under the ISDA; and/or (b) close out transactions outstanding under the GMRA, in accordance with the provisions of the GMRA ISDA

  18. ISDA Cross-Agreement Bridge Although Party Y may close out transactions under either or both the GMRA and the ISDA, if it does close out transactions under both agreements, it will not achieve a net close-out position. Two different amounts will be due, although this time (c.f. Scenario 1, option (b)), Party X is not insolvent: Repo transactions Derivative transactions GMRA ISDA GMRA net close-out amount: USD 10m due to Party X ISDA Settlement Amount:USD 15m due to Party Y ISDA

  19. ISDA Cross-Agreement Bridge Scenario 5 1. Parties X and Y have entered into the following agreements: ISDA Master AgreementGMRA 2. ISDA Master Agreement does NOT include Bridge 3. “Specified Transaction” includes repo transactions between the parties 4. A default (not insolvency), with respect to Party X, under a repo transaction occurs, constituting a Default under Specified Transaction under Section 5(a)(v) of the ISDA Master Agreement, and, of course, an Event of Default under the GMRA ISDA

  20. ISDA Cross-Agreement Bridge The Bridge will not apply. Party Y may: (a) close out transactions outstanding under the ISDA; and/or (b) close out transactions outstanding under the GMRA, in accordance with the provisions of the GMRA ISDA

  21. ISDA Cross-Agreement Bridge Although Party Y may close out transactions under either or both the GMRA and the ISDA, if it does close out transactions under both agreements, it will not achieve a net close-out position. Two different amounts will be due, although this time (c.f. Scenario 1, option (b)), Party X is not insolvent: Repo transactions Derivative transactions GMRA ISDA GMRA net close-out amount: USD 10m due to Party X ISDA Settlement Amount:USD 15m due to Party Y ISDA

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