Co-authored by Linda Sharkey, Law Clerk

How do master agreements work?

A master agreement is a set of common terms pre-agreed by the parties which will apply to any transactions of the same kind between them. For each transaction, the parties only have to determine and to agree its specific terms, ie mainly the kind of transaction (among those the parties have chosen to submit to the master agreement), the financial terms and, as the case may be, other specific terms which derogate to the content of the master agreement.

What are the main European derivative master agreements?

The main derivative master agreements used in Europe are sponsored by:

  • the International Swaps and Derivatives Association, Inc. (ISDA), and
  • the European Banking Federation (EBF)

There are also master agreements that have been developed:

  • in France, by the Fédération Bancaire Française (French Banking Federation, FBF)
  • in Germany, by the Bundesverband deutscher Banken (Association of German Banks), and
  • in Spain, by the Asociación Española de Banca (Spanish Banking Association) and the Confederación Española de Cajas de Ahorros (Spanish Confederation of Savings Banks)

The ISDA Master Agreement

The English law 2002 ISDA Master Agreement is currently the most commonly used in Europe for derivative transactions. It is used for transactions between parties in several jurisdictions and/or transactions in several currencies. It is governed by English law and submitted to the jurisdiction of English courts.

It is actually a set of documentation including:

  • the Master Agreement, the form of which is not amended by the parties
  • a template Schedule which is drafted by the parties and designed to amend or elaborate the terms of the template Master Agreement
  • a template Confirmation which is used by the parties to enter into each transaction and to set out the specific terms thereof, and
  • templates of security documents which currently comply with the EMIR obligations (please see European derivatives master agreements — What are the EMIR margin obligations and how are they covered? below.

For more information on the ISDA Master Agreement, see Master agreements and schedules—overview and Scope of the ISDA Master Agreement and Schedule—overview.

For more information on the EMIR obligations, see the European Market Infrastructure Regulation (EMIR)—toolkit and Practice Note: ISDA's EMIR protocols.

In response to the upcoming withdrawal of the UK from EU, a French law Master Agreement and an Irish law Master Agreement have been published by ISDA, in order to address the uncertainties regarding the rules applying to master agreements governed by a law and submitted to courts which are not the law and the courts of an EU Member State, including rules on the recognition of foreign judicial decisions or on the European licenses and passports for the finance industry.

For more information on Brexit, see the Brexit toolkit.

The ISDA documents are available for a fee on the ISDA website.

Read the full article here.

Originally published in the July 2018 issue of Lexis PSL Banking & Finance.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.