The framework contract also helps to reduce litigation by providing significant resources that define its contractual terms and explain the intent of the contract, thus preventing litigation from beginning and providing a neutral resource for interpreting standard contractual terms. Finally, the framework agreement provides significant assistance in managing risks and credit for the parties. Although the 1992 agreement provided for the imposition of interest on non-payment of amounts before and after the whistleblowing, the authors of the 2002 agreement considered these short provisions insufficient. The new document contains detailed and comprehensive provisions on when interest is collected for outstanding payments and notice amounts and how such interest is calculated. In 1987, ISDA established three documents: (i) a standard form control agreement for U.S. dollar interest rate swaps; (ii) a standard-master contract for multi-currency interest rate and exchange rate swaps (known as the "1987 ISDA Executive Contract"); and (iii) definitions of interest rates and currencies. The framework contract is quite long and the negotiation process can be difficult, but once a framework contract is signed, the documentation of future transactions between parties will be reduced to a brief confirmation of the essential terms of the transaction. The master`s agreement was updated in 2002 (known as ISDA Masteragrement 2002). The updated phase of the 1992 agreement has its roots in the succession of crises that affected global financial markets in the late 1990s. These events, including the liquidation of Hong Kong broker Peregrine Investments Holdings Holdings and the 1998 Russian financial crisis, tested ISDA documentation to an extent unknown to date. Although the ISDA documentation withstood this test, ISDA decided to put in place a strategic review of its documentation to see what lessons could be learned from these events.
This revision resulted in a complete update to the 1992 agreement, which culminated in the 2002 agreement. The ISDA Masteragrement, published by the International Swaps and Derivatives Association, is the most widely used master service contract for otC derivatives transactions internationally. It is part of a documentary framework that aims to provide comprehensive and flexible documentation on OVER-the-counter derivatives. The framework consists of a master contract, a calendar, confirmations, definition brochures and credit support documentation. Traders and demanding end-users who wish to adopt the new agreement can look forward to several months of internal meetings, as the content is digested. Changes have been made not only to legal issues, but also to trade, credit and operational issues. Unfortunately, to the letter, any amendment to the agreement has some meaning that must be understood and weighed before the treaty is used. If past experience is a guide, the use of the agreement on a consistent basis can take from six months to a year. The authors of the 2002 agreement included a force majeure or impossibility event in response to recent serious events around the world and in the marketplace.
The terrorist event of September 11 and the 1998 market disruptions signalled the need for a provision dealing with situations where it was impossible or incon practice for a party, but not illegal, to provide a service. The 2002 agreement significantly expands the Credit Event Upon Merger Termination Event. For a credit event to occur after the merger, the party concerned must be "much weaker" after the appearance of one of the three "organized events." Once again, the authors chose not to define what is meant by "much weaker."