The most important thing is to remember that the ISDA executive contract is a clearing agreement and that all transactions are interdependent. Therefore, a default in a transaction counts by default among all transactions. Point 1 (c) describes the concept of a single agreement and is of paramount importance as it forms the basis for network closures. When a standard event occurs, all transactions are completed without exception. The concept of out-of-gap clearing prevents a liquidator from making «cherry pickings,» i.e. making payments on profitable transactions for his bankrupt client and refusing to do so in the case of an unprofitable customer. Most multinational banks have ISDA master agreements. These agreements generally apply to all branches engaged in currency, interest rate or option trading. Banks require counterparties to sign an exchange agreement.
Some also require exchange agreements. While the ISDA master contract is the norm, some of its terms and conditions are changed and defined in the accompanying schedule. The schedule is negotiated, either to cover (a) the requirements of a given hedging transaction or (b) a current business relationship. The benefits of documentation and standardized definitions are manifold. In particular, we can point out that the main benefits of an ISDA executive contract are improved transparency and liquidity. As the agreement is standardized, all parties can study the ISDA master agreement to find out how it works. This improves transparency by reducing the possibility of opacity of leakage provisions and clauses. Standardization by an ISDA executive contract also increases liquidity, as the agreement makes it easier for parties to make repeat transactions. Clarifying the terms of such an agreement saves all parties time and legal fees. The main credit support documents in English law are the 1995 credit support annex, the 1995 credit support instrument and the 2016 credit support annex for the margin of change. English credit support laws provide for property guarantees, while English law provides for the granting of an interest rate on the value of the property through transferred security.
The 2016 Credit Support Schedule for Variation Margin was specifically created to enable the parties to meet their commitments to exchange margin of change worldwide, including EMIR in Europe and Dodd-Frank in the United States of America.