International Swaps and Derivatives Association, Inc.

Introduction to the 1992 ISDA Master Agreement

Nacional Financiera Auditorium - Mexico City



May 7, 2001

John P. Emert
Assistant General Counsel
Bank of America
Emilio J imenez
Vice President and
Assistant General Counsel
JPMorgan Chase & Co.
2
ISDA Agreement Structure (2001)



1997 Government
Bond Option
Definitions

1992 Master Agreement
(Multicurrency-Cross Border)
Sets master agreement structure
Incorporates Confirmations
Includes representations, events
of default/termination events
and covenants
Specifies early termination
provisions
Schedule used to make changes
to standard provisions
Confirmations (Short Form)
Incorporate definitions
Specify economic terms of each transaction
Include any individual modifications
1998 FX and Currency
Option Definitions
1991 Definitions
Specify payment calculations
Define floating rates in 20
currencies
Include provisions for swaps,
caps, collars, floors, swap
options and FRAs
1993 Commodity
Derivatives Definitions
1994 Credit Support
Annex (New York law)
1996 Credit Support
Annex (Japanese law)
1996 Equity
Derivatives
Definitions
1999 Credit
Derivatives
Definitions
EMU Protocol
1998 Supplement to the
1991 Definitions
1997 Bullion
Definitions
1998 EURO
Definitions
2000 Supplement to the
1993 Commodity
Derivatives Definitions
2
1995 Credit Support
Annex (English law)
1995 Credit Support
Deed (English law)
2000 ISDA Definitions
3
Section 1 - Interpretation
Interpretive Priority
Single Agreement
4
Section 2 - Payment and Delivery
Obligations
Conditions Precedent
Change of Account
Payment Netting
Tax Withholding/Gross-Up
Default Interest/Other Amounts
5
On-Going Netting - Section 2(c)
(Not Close-out Netting)
Party
A
Net: $75
Party
B
Gross:
$100
Gross: $25
Section 3 - Representations
Purposes: Facilitate Due Diligence
Establish Factual Underpinnings of
Agreement

Remedies: Event of Default/Liquidation
Agreement Measure of
Damages/Other Remedies


6
Section 3 - Representations (cont.)
Basic Representations
Absence of Certain Events
Absence of Litigation
Accuracy of Specified Information
Tax Representations
Additional Non-Standard Representations
7
8
Section 4 - Agreements
Purpose/Remedies
Furnish Specified Information
Maintain Authorizations
Comply with Laws
Tax Agreement
Payment of Stamp Tax
9
Events of Default
Section 5(a)(i) Failure to Pay or Deliver
Section 5(a)(ii) Breach of Agreement
Section 5(a)(iii) Credit Support Default
Section 5(a)(iv) Misrepresentation
Section 5(a)(v) Default under Specified
Transactions
Section 5(a)(vi) Cross Default
Section 5(a)(vii) Bankruptcy
Section 5(a)(viii) Merger Without Assumption
Section 5(a)
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Default under
Specified Transactions
Specified Transactions (defined in Section 14)
means derivatives transactions outside ISDA
between

PARTY A
Credit Support Provider
Specified Entity
PARTY B
Credit Support Provider
Specified Entity
and
Section 5(a)(v)
11
Cross Default
Default in respect of borrowed money
Threshold Amount
Section 5(a)(vi)
12
Bankruptcy
Insolvency-related events
Actual liquidation
Actions by a secured party
Section 5(a)(vii)
13
Termination Events
Section 5(b)(i) Illegality
Section 5(b)(ii) Tax Event
Section 5(b)(iii) Tax Event Upon Merger
Section 5(b)(iv) Credit Event Upon
Merger
Section 5(b)(v) Additional Termination Event
Section 5(b)
Early Termination
Reason
Events of Default
Bankruptcy
Other
Termination Event
Illegality
Tax Event Upon Merger
Tax Event
Credit Event Upon Merger
Additional Termination Event
TERMINATION MECHANICS: How to Terminate
1992 ISDA Master Reference
Sections 6(a) + (b); Pages 8-9
Who may terminate
Non-defaulting Party or Automatic*
Non-defaulting Party

either party
Burdened Party
Affected Party
non-Affected Party
non-Affected Party or either party (if
there are two Affected Parties)
*only applies if elected in Schedule
14
15
Event of Default
Credit Event Upon Merger
Additional Termination Event
Other Termination
Events
Early Termination
all Transactions terminated
all Transactions terminated
all Transactions terminated
(presumption)
only Affected Transactions
TERMINATION MECHANICS: Effect of Termination

1992 ISDA Master Reference
Section 6(c); Page 9
16
Early Termination Payment
Components
SETTLEMENT AMOUNT: net value of amounts
(based on Market Quotation or Loss) which would
have been payable under each Terminated
Transaction after the Early Termination Date
(ETD) had there not been an ETD (this may be
owed by or to the determining party)
Plus UNPAID AMOUNTS owed to the determining party
on or before the ETD
Less UNPAID AMOUNTS owed by the determining party
on or before the ETD.
17
Timeline
The following diagram gives an example of how certain payments would fall within Unpaid
Amounts and how others would fall within Market Quotation where there are two swaps and
Party B is the Defaulting Party.

Thursday Monday Tuesday Thursday Monday Wednesday Friday
January 7 January 11 January 12 January 14 February 8 February 10 February 12
Swap 1 Party A gives Swap 2 Party Bs Party A Early Termination Swap 2
Payment Date: notice of Payment Date: failure to pay designates Date. scheduled
Party B failure to Party A would on January 7 February 10 Also Swap Payment Date.
owes $150,000 Party B. have owed becomes as the Early 1 Payment Date: Party A
and fails $75,000. Event of Termination Party B owes would have
to pay. Default. Date. $100,000. owed $75,000.

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Timeline (contd)
Unpaid Amounts
includes amount Party B failed to pay on
January 7.
includes amount Party A did not have to pay on
January 12 (failure to satisfy condition
precedent that there be no Event of Default or
Potential Event of Default).
includes the payment scheduled for
February 10 (would have been payable on Early
Termination Date).
excludes the payment scheduled for
February 12 even though portion of relevant
calculation period has run as of Early
Termination Date.
Market Quotation
includes discounted value of
payment scheduled for February 12,
as well as replacement value (based
on Market Quotations) of all
subsequent payments due under
Swaps 1 and 2.
19
Early Termination Payment
Components
Swap 1 Swap 2

Market Quotation
(determined by Party A) $1,100,000 ($1,400,000)

Unpaid Amounts
payable to Party A 150,000 -
100,000

Unpaid Amounts
payable to Party B - 75,000
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Calculation
Sum of Market Quotations $1,100,000
(Settlement Amount) (1,400,000)
($300,000)
Plus Unpaid Amounts payable to Party A 150,000
100,000

250,000
Less Unpaid Amounts payable to Party B (75,000)
(75,000)
($125,000)
Early Termination Payment
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Early Termination Payment
Result
if First Method is chosen: no payment is due to
either party

if Second Method is chosen: Party A pays $125,000 to
Party B
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Early Termination Payment
Possible Combinations
Events of Default
First Method/Market Quotation
First Method/Loss
Second Method/Market Quotation
Second Method/Loss
Termination Events
Market Quotation (One Affected Party)
Loss (One Affected Party)
Market Quotation (Two Affected Parties)
Loss (Two Affected Parties)
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...And last but not
(necessarily) least:
Section 7 - Transfer
Section 8 - Contractual Currency
Section 9 - Miscellaneous
Section 10 - Multibranch
Section 11 - Expenses
Section 12 - Notices
Section 13 - Governing Law
Section 14 - Definitions
Testimonium
Signature blocks
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Multibranch
Party A
(Frankfurt)
Party B
(Paris Branch)
Party B
(London
Head Office)
Swap 1
Swap 2