FIA and ISDA today announced the publication of the FIA-ISDA Cleared Derivatives Execution Agreement as a template that can be used by participants in the cleared swaps markets in negotiating execution-related agreements with counterparties to OTC derivatives that are intended to be cleared.

The agreement was developed with the assistance of a committee comprised of representatives from both buy-side and sell-side firms with expertise in both futures and OTC derivatives. More than 60 organisations provided input during the development of the document.

The FIA and ISDA believe that this agreement will support the adoption of central clearing in the global derivatives markets by providing a model for the legal documentation supporting derivatives clearing. The FIA and ISDA emphasize that the use of the agreement is voluntary: The agreement is being published as a template for participants to use as they see fit and may not be necessary or appropriate under all circumstances.

This agreement lays out the procedures by which a trade is submitted for clearing, including the obligations for each party to affirm the trade within prescribed time limits. The agreement clarifies that once a trade is accepted for clearing, each party's agreement with its clearing firm will govern and neither party to this agreement has any further obligation to the other. Second, it establishes the rights and obligations of the parties in the event that a trade is not accepted for clearing. Third, the agreement includes optional annexes for those parties that want a clearing firm to be party to the agreement. The agreement is clearinghouse-neutral.

The agreement attempts to provide some initial structure for documentation governing the execution of cleared swaps pending full implementation of the reforms mandated by the Dodd-Frank Act in the US and similar reforms in other parts of the world. The FIA and ISDA recognize that many provisions in the agreement will be superseded by new regulatory requirements as well as the specific rules of individual swap execution venues and clearing organisations. Until cleared swap market rules and regulations have been adopted and implemented, the agreement sets out certain terms and conditions that market participants who enter into execution agreements may consider. This is the first version of the document; FIA and ISDA expect that the agreement will be updated and enhanced over time as the market for cleared swaps continues to evolve.