SWAP DOCUMENTATION
Swap agreements are usually initiated over the phone. The phone agreements are confirmed, usually within 24 hrs., by a telex, fax or letter. The agreement is not final until proper documentation covering all the relative issues are exchanged and signed by counterparties.
New York based International Swap and Derivatives Association (ISDA), British Banker’s Association (BBA) and Australian Banker’s Association standardized the documentation of swap. BBA's code BBAs Interest Rate Swap (BBAIRS) focuses primarily on the documentation of interbank swaps and the Australian Banker's Association's code focuses on documenting Australian interest rates swaps.
In, 1987, ISDA introduced two standards forms of agreements. The Interest Rate Swap Agreement is an agreement for US dollar denominated swaps. This master swap agreement is based on the 1986 Revised Version of the Code of Standard Wording, Assumptions and Provisions for Swaps. The other master swap agreement is called the Interest Rate and Currency Exchange Agreements. This agreement is used for currency swap and interest rate swaps in any currency. Any new swap is a supplement to these masters’ swaps agreements.
The standardization of swap agreements eliminated many impediments to the swap market. The decrease in the number of hours spent on drafting agreements lowered legal expenses as well as expedited the transaction process. The standardization allowed dealers to match potential counterparties with more ease and allowed existing counterparties to reverse swaps with fewer complications.
The documentation covers the following issues:
Payments
Representations
Agreements
Events of Default and Termination Event
Transfer
Tax matter
Credit Support Documentation
Exiting Swap Agreement
Following are risks associated with swaps:
Interest rate risk
Exchange rate risk
Default risk
Sovereign risk
Mismatch risk (for dealers only)
In 1987, a set of principal were arranged by the central banking authorities of the Group of Ten plus Luxembourg known as the Basle Supervisor's Committee to standardize capital requirements across nations. According to this set of requirements, called the Basle Accord, dealers of swaps and other off-balance sheet instruments are imposed risk-adjusted capital requirements.
Swap agreements are usually initiated over the phone. The phone agreements are confirmed, usually within 24 hrs., by a telex, fax or letter. The agreement is not final until proper documentation covering all the relative issues are exchanged and signed by counterparties.
New York based International Swap and Derivatives Association (ISDA), British Banker’s Association (BBA) and Australian Banker’s Association standardized the documentation of swap. BBA's code BBAs Interest Rate Swap (BBAIRS) focuses primarily on the documentation of interbank swaps and the Australian Banker's Association's code focuses on documenting Australian interest rates swaps.
In, 1987, ISDA introduced two standards forms of agreements. The Interest Rate Swap Agreement is an agreement for US dollar denominated swaps. This master swap agreement is based on the 1986 Revised Version of the Code of Standard Wording, Assumptions and Provisions for Swaps. The other master swap agreement is called the Interest Rate and Currency Exchange Agreements. This agreement is used for currency swap and interest rate swaps in any currency. Any new swap is a supplement to these masters’ swaps agreements.
The standardization of swap agreements eliminated many impediments to the swap market. The decrease in the number of hours spent on drafting agreements lowered legal expenses as well as expedited the transaction process. The standardization allowed dealers to match potential counterparties with more ease and allowed existing counterparties to reverse swaps with fewer complications.
The documentation covers the following issues:
Payments
Representations
Agreements
Events of Default and Termination Event
Transfer
Tax matter
Credit Support Documentation
Exiting Swap Agreement
Following are risks associated with swaps:
Interest rate risk
Exchange rate risk
Default risk
Sovereign risk
Mismatch risk (for dealers only)
In 1987, a set of principal were arranged by the central banking authorities of the Group of Ten plus Luxembourg known as the Basle Supervisor's Committee to standardize capital requirements across nations. According to this set of requirements, called the Basle Accord, dealers of swaps and other off-balance sheet instruments are imposed risk-adjusted capital requirements.