More netting and less data-duplication effort are among the advantages expected by derivatives association ISDA, as it aligns derivatives and securities financing transactions both into a single ISDA Master Agreement.

The Master Agreement of the International Swaps and Derivatives Association (ISDA) is the industry-standard document to streamline the production and handling of over-the-counter derivatives agreements. A recent addition is meant to enable documentation also of securities financing transactions (SFT).

Scott O’Malia

In a blog post, ISDA chief Scott O’Malia shares an informal comment on what it is about.

“Derivatives and securities financing transactions (SFTs) interconnect in a variety of ways and share many common features, but participants that straddle both markets have to use two or more similarly structured agreements to document their derivatives and SFT trades – a situation that can be both complex and duplicative,” he writes.

Grows the netting sets

The approach of coordinating the derivatives and SFTs under a single Master Agreement will bring several benefits – such as expanding netting sets, which will enable institutions to reduce credit risk, according to Scott O’Malia.

“Using a single agreement will also reduce duplication of effort when negotiating and managing documentation, shrink operational costs as a result of firms referencing a common documentation standard within their systems, and enable any legal or regulatory updates to be rolled out consistently for both sets of products. In addition, having common legal standards, terms and documentation should make it possible to develop technology solutions that can be applied consistently and at scale across both derivatives and SFT markets,” he adds.

As pioneers, he expects firms engaging in structured trades which involve both derivatives and SFTs.

“Over time, though, institutions may opt for the convenience, simplicity and cost savings of using a single agreement in other situations.”