DerivativesLab

A recipe for a successful ISDA negotiation.

ISDA is one of the most frequently utilised and negotiated trading agreements in the world’s multi-trillion-pound derivatives market. This creates an immense potential if you wish to build your career in the financial services industry.

 

Although there are many ISDA negotiators out there, mastering the art of ISDA negotiations is a complex and time-consuming process. Nowadays, most market participants push for automation at the cost of decreased quality.

 

I am often asked if we even have to negotiate ISDAs anymore and what’s the value-added? As I venture into this recipe analogy, the answer is really in what you prefer – McDonald’s or a home-made cooked meal? Of course, there may be occasions when we only have just about enough time to order a Big Mac, but it’s all about the quality of ingredients, the experience you wish to deliver to your clients and the aftertaste; so what makes a good ISDA recipe?

 

As with every dish, every chef has their own recipe and a secret ingredient. I have spent over a decade working in this fascinating industry and battled my way through thousands of ISDA agreements every year, and yet I have to admit – every ISDA negotiation is different. From my experience, a successful ISDA negotiation is one that:

·       doesn’t last longer than a few months;

·       doesn’t need to be urgently amended a day after signing; and

·       leaves you with a new friend on the other side of the negotiation.

 

This recipe is simple and all about the technique. Once you learn it, you’ll be doing it over and over again. The best thing is that you will perfect it over time.

 

Ingredients:
(1) Two parties, not three or five, just two. It’s all about building a relationship with your counterparty. Remember that the other person at the end of the email is after the same outcome – getting the agreement finalised. Although there most likely will be a need to involve other internal stakeholders, seek approvals and consult with subject matter experts in other areas, the key is to keep it all contained and avoid unnecessary escalations and involvement of third parties. Own. Your. Negotiation. We all know what happens when you have too many cooks…


(2) One (preferably good) template. If you’re a buy-side client, you either have your own pre-agreed negotiated template or you will receive one “off the shelf” from your broker counterparty. If you’re on the sell-side, you will have a selection of templates to choose from and elections to make before sending it to your buy-side client. Stick to the template and make sure you use the correct one, unnecessary delays can be caused if an incorrect form is used.


(3) Twenty-nine pages of pre-print and one schedule. Only the schedule is negotiable. Please do not amend the first twenty-nine pages of the agreement.

 

(4) A few good hours on calls with your stakeholders and your counterparty. This is important and speeds up the process significantly. Review, analyse, prepare, and pick up the phone.


(5) A pinch of realism. These things take time and usually your fellow negotiator “on the other side” is dealing with 150,000 other equally urgent matters and is under pressure to deliver. Be patient and manage your internal stakeholders’ expectations accordingly.

 

Method:

You need to mix this all in the right proportions. Nothing beats experience, and with time you will learn how people from various organisations respond. Sometimes grilling your counterparty is the best way forward, other times it’s best to sauté quickly or exercise patience and bake the deal for as long as needed to achieve the desired outcome.


Finally, remember there is a real person on the receiving end of your emails and phone calls. A good email etiquette goes a long way. Be kind – that’s the true secret ingredient.

 

And now I’m hungry.

ISDA® is a registered trademark of the International Swaps and Derivatives Association, Inc. This article is neither sponsored by nor affiliated with the International Swaps and Derivatives Association, Inc.