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ABCs of ISDA agreements: advising the investor

Robert A. Robertson (Partner in the Financial Services Group of Dechert LLP in Orange County, Irvine, California, USA)
Gerardo Perez‐Giusti (Associate in the Financial Services Group of Dechert LLP in Orange County, Irvine, California, USA)

Journal of Investment Compliance

ISSN: 1528-5812

Article publication date: 16 June 2010

839

Abstract

Purpose

The purpose of this paper is to provide an introduction to benefits of using over‐the‐counter (OTC) derivatives when implementing an investment strategy. The paper aims to examine the basic legal structure of OTC derivative transactions and the International Swaps and Derivatives Association (ISDA) agreements used to document such transactions. The paper also aims to offer advice to institutional investors on steps they can take during the negotiation of ISDA agreements to reduce associated counterparty, termination and liquidity risk.

Design/methodology/approach

The paper outlines the typical structure of OTC derivative trades; summarizes the documents used to establish a trading relationship, and outlines key considerations for institutional investors during the negotiation of ISDA agreements.

Findings

An institutional investor should carefully review and negotiate ISDA documents to properly implement OTC derivative trades that conform to the investor's overall business operations and investment strategy.

Practical implications

While achieving the benefits of OTC derivative trades, an institutional investor also can negotiate agreements to reduce risks associated with these transactions.

Originality/value

The paper provides practical guidance from experienced securities and derivatives lawyers.

Keywords

Citation

Robertson, R.A. and Perez‐Giusti, G. (2010), "ABCs of ISDA agreements: advising the investor", Journal of Investment Compliance, Vol. 11 No. 2, pp. 4-15. https://doi.org/10.1108/15285811011056321

Publisher

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Emerald Group Publishing Limited

Copyright © 2010, Company

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