Linklaters acts for ISDA on New Documentation to Align Derivatives and SFT Markets

Linklaters has advised The International Swaps and Derivatives Association, Inc. (ISDA) on a new definitional booklet and related set of provisions designed to allow firms to document derivatives and securities financing transactions (SFTs) under a single ISDA Master Agreement.

The launch of the 2022 ISDA Securities Financing Transactions Definitions and SFT Schedule Provisions follows an ISDA whitepaper in October 2020, which highlighted significant opportunities for alignment between the two markets. A single agreement for both derivatives and SFTs will reduce complexity and duplication, create efficiency in documentation negotiation and management, and enable documentation updates to be rolled out consistently for both sets of products.

Using a single agreement will also result in expanded netting sets, helping firms to reduce credit risk and optimise their collateral use. ISDA will shortly commission updated netting opinions covering SFTs, with the first scheduled to be available later this year.

Establishing common legal standards, terms and documentation will also help drive new technology innovations by applying terms consistently and at scale across derivatives and SFT markets.

Pauline Ashall, Derivatives partner at Linklaters, commented:

“We were pleased to work with ISDA on the ISDA SFT documentation which we think will really help market participants to achieve greater standardisation when documenting SFTs under the ISDA architecture.”

The new SFT documentation was developed by an ISDA working group comprising members from both the buy and sell side.