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Advanced OTC Documentation Relevant to CCPs

June 2012

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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