Investopedia Video: ISDA Master Agreement

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The ISDA Master Agreement is a document outlining the terms of an over-the-counter derivatives transaction between two parties. This document serves as a standard agreement in these transactions and is published by the International Swaps and Derivatives Association. The ISDA master agreement applies to all future transactions between the two parties, which means that they do not have to renegotiate the terms before entering into new transactions together. Nevertheless, the parties can add or alter the terms of the master agreement by using a document called an ISDA Schedule.

There are no exchanges or intermediaries in over-the-counter derivatives transactions, since they are conducted exclusively between the two parties. The huge values and volumes in the OTC market made traders especially cautious. As a way to alleviate these fears, the ISDA Master Agreement was created in 1985.

The ISDA master agreement is especially valuable in that it contains clearly worded definitions of all contract terms for both parties, and the recurring transaction terms created by the agreement can save both parties considerable time and legal fees.