The International Swaps and Derivatives Association, a.k.a. ISDA, was established in 1985 by those in the privately negotiated, over-the-counter (OTC) derivatives trading markets. ISDA wants to achieve three mains goals: reduce counterparty credit risk, increase market transparency and improve the industry’s operational infrastructure. ISDA’s work covers derivatives based upon interest rates, credit, equity, FX, energy, commodities and structured products.
In order to facilitate the safe and efficient trading of derivatives, ISDA has created a standardized contract, known as the ISDA Master Agreement, for those firms that wish to participate in private derivatives transactions. In fact, although the ISDA Master’s Agreement was established for financial institutions, it is also used by many non-financial, multi-national corporations.
In addition to the standardized contract, ISDA works with policymakers around the world to achieve a greater understanding of the complexities of the privately negotiated derivatives market especially as global markets embrace new regulations for cleared and executed OTC instruments. ISDA also promotes best practices for risk management.
ISDA has more than 815 members from institutions in 60 countries. Members of the association include market participants such as corporations, service providers, government entities, investment managers, and exchanges that rely on or facilitate OTC derivatives.
The association’s members are classified into three categories according to ISDA by-laws: primary members (dealer firms); associate members (service providers); and subscribers (end-users).
Only ISDA members are entitled to receive the association’s legal opinions on the enforceability of the netting provisions of the 1992 and 2002 ISDA Master Agreements, which cover credit risk and capital requirements in jurisdictions subject to BIS capital regulations.
The association has obtained netting opinions for more than 55 jurisdictions and continues to commission more netting opinions for its members. ISDA also obtains collateral opinions for its members and has obtained more than 45 of them, which are updated annually.