Derivatives Documentation – Questions Answered

During our recent webinar, "Managing OTC Derivatives Documentation in a Central Clearing Environment," we had several questions from the audience that we couldn't cover in the time allotted. Paul Nelmes of Exari offers the following response to one of the questions posed from the audience during the Web-event.

Q. If not already on the agenda, would appreciate an overview of the client clearing documentation that will be in the US, given that client clearing would be a principal-agency model (futures/FCM model). What is the status of such documentation?

A. My understanding of the documentation required under the ‘Principal’ and ‘Agency’ models is:

Documentation ‘Principal model’

1. Existing ISDA for uncleared transactions remains

2. New ISDA and CSA between CM and client for client clearing transactions

3. New set of documentation for each CCP

4. Security Deed/Agreement whereby the CM grants to its client a security interest in respect of client account at the CCP

5. New security arrangement for each CCP

6. Give-Up agreement – agreement between the Clearing Member and Broker whereby the CM agrees to accept give-up transactions in relation to underlying clients

7. Compensation Agreement (if a transaction is not cleared) – a fall back to the previous Give-Up, which covers compensation arrangements between the Executing Broker and the client in the event that a transaction is not accepted by the CM for clearing

6 & 7 above are between the three parties until the transaction clears and/or in the event that it doesn’t

• There are potentially further agreements required detailing the fees charged to the client for clearing – prepared by the CM

Documentation ‘Agency’ Model

1. Futures Agreement – with addendum for Clearing transactions

2. Give-Up Agreement between FCM, Client and Executing Broker

3. End-User License Agreement for use of electronic systems

• There are potentially further agreements required detailing the fees charged to the client for clearing – prepared by the CM

To see some more of the post-event Q&A, read the DerivSource Blog (registration required).

For information on streamlining your derivatives documentation visit Exari.

Derivatives Documentation Resources and Glossary

Following our recent webinar, Managing OTC Derivatives Documentation in a Central Clearing Environment, Julia Schieffer posted a list of her favorite resources for derivatives professionals in search of explanations for some of the jargon used in the derivatives industry. Her list included:

The US Commodity Futures Trading Commission website:

http://www.cftc.gov/LawRegulation/DoddFrankAct/index.htm for its resources on the Dodd-Frank Act legislation, regulatory meetings and related reports; and

Sapient Global Markets OTC Derivatives Terminology Glossary -- this is a very useful resource for basic terms though not documentation specific. http://www.derivsource.com/glossary/

The complete list can be found on the DerivSource Blog. To request a recording of the webinar, please click here.

Photo credit: artemuestra.

InsideCounsel Magazine and Exari Launch Survey On Sales Contracts Processes

We have partnered with InsideCounsel Magazine to survey how in-house legal departments assess the effectiveness of their current sales contracts creation and management processes. The survey launched yesterday and will be open for two weeks.

All qualified respondents are eligible to enter a drawing to win an iPad and can elect to receive the full results report. You can take the 2-3 minute survey here, if you are an inhouse legal professionals.

Contract Automation has become increasingly important to the overall success, profitability and risk management of companies. Prioritizing the effective creation and management of contracts and streamlining contract processes allows you to mitigate risks and improve overall performance.

This survey is designed to provide an understanding of how companies currently manage their sales contracts and the effect it is having on the success of their business. The survey is open to corporate legal professionals and is designed to assess the current state of sales contract management from an in-house legal perspective.

Contract Benchmark Data

Spring seems to be the season of surveys and we're being alerted to several. Since many of these contracts surveys have a direct correlation to contract creation (document assembly) and contract management, we'll be sharing interesting findings. Where appropriate, we'll also provide links to the surveys.

We recently received some interesting contract benchmark data from Tim Cummins and the IACCM. And, since as Tim points out, "in the areas of contract management and negotiation, it is extremely hard to obtain relevant information," we wanted to share that data with you. The IACCM findings include:

• Only 11% of organizations are consistently successful in imposing their standard terms and conditions;
• Sell-side legal and contracts groups are increasingly struggling to get their standard terms accepted by business customers (some spend a lot of time fighting, while others have recognized smarter ways to manage risks and variations and are changing their negotiation strategies);
• The role of Legal in the contracting process has increased on average by almost 40% in the last 5 years
  
• The average cycle time to negotiate a medium-complexity contract is 7 – 10 weeks (Companies that shorten cycle times gain the benefits of increased speed to cash and less exposure to competitive challenges or changes in market conditions / requirements);
  
• Productivity of contracts professionals, measured by the average number of contracts handled, varies by more than 100% between high-performing and low-performing organizations.
  

This data is drawn from IACCM's recent series of contracting benchmark studies and is being made available at no charge to participants in the survey.

Tim adds, "Today, leading organizations (as revealed by the benchmark study) have grasped that the contracting process can drive the quality and efficiency of many internal commercial practices. Academics share this view, with a growing number highlighting the competitive advantage to be gained through superior contract and commitments processes."

Exari clients know this first hand. They have succeeded in shortening their sales cycles, built their standard terms and conditions along with acceptable negotiated fall back positions into their contract templates, streamlined their negotiations and reduced their revenue leakage by automating their contracts process. You can learn more by visiting www.exari.com.

You can participate (and receive full results) in IACCM's Performance Measurement survey here.