“All transactions are concluded with the confidence that this framework agreement and all confirmations constitute a single agreement between the parties. and the parties would not otherwise transact.¬†This concept of an individual contract is an integral part of the structure and part of the compensation-based protection offered by the framework agreement. The fact that all transactions are the only contract enhances the ability to enter into those transactions and obtain a single net amount to be paid in the event of default. Then there is a question of determination itself. For the purpose of calculating the final amount, the law uses a concept of the “value of the obligations” of a party in a derivatives transaction, followed by a statement that the procedure for determining that value should be defined by the clearing agreement. The “value of liabilities” is in turn defined as the “monetary equivalent” of the liabilities in question. Here too, for total clarity, a little more explanation in the law itself may have been helpful. Nevertheless, we believe that the approach of losses (costs) and profits when replacing or obtaining an economic equivalent as used in the definition of the closing amount under the ISDA Framework Agreement should be covered. The provision of the law, which granted the parties the freedom to define in the compensation agreement how they wish to determine the “value of obligations”, provides comfort in this context. For the same reason, we believe that unpaid amounts should also be covered by the legal concept of “value of liabilities”. The framework agreement allows for the clearing of payments due in the same operation, so that only one amount is exchanged between the parties and not a large number of payments for the same transactions.

Most counterparties also agree that all amounts due in a single day should be net, whether amounts are due in one or more transactions. Which party must deposit guarantees (this can be limited to both parties or both parties must post guarantees). Obviously, the fact that a party is exempt from the security deposit makes a big difference: it will itself have a reduced counterparty credit risk, but its counterparty faces the total credit risk. Guarantees are intended to reduce netting sets; That is, it is held against the entire portfolio of OTC contracts covered by the ISDA Agreement. An ISDA framework contract is the standard document used regularly to regulate derivative trading transactions. The agreement, published by the International Swaps and Derivatives Association (ISDA), outlines the terms applicable to a derivatives transaction between two parties, typically a derivatives dealer and a counterparty. The ISDA framework contract itself is standard, but it comes with an adapted schedule and sometimes a credit support schedule, both signed by both parties in a given transaction. Cooke J acknowledged that for the purposes of the Framework Agreement, “set-off and set-off are two different concepts”. Set-off relates to amounts due under the framework agreement (before or after early cessation of operations), while set-off (in certain circumstances) allows amounts to be paid under another agreement to reduce the amount of early termination, which in itself is the result of a close-out set-off after early termination.

Most multinational banks have ENTERed into ISDA framework contracts. These agreements generally apply to all branches operating in the context of currency, interest rate or option trading. . . .