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FINANCIAL MARKET COURSES

Swaps - Documentation & Settlement

If a trader buys or sells a security, then the settlement and documentation processes are fairly straightforward. The trader usually just enters the details of the trade into a computer system and any payments, transfer of securities, and documentation are all automatically processed. Swaps, however, are generally long-term contracts that generate substantial credit exposure, so they require documentation describing the way defaults can occur and any actions pursuant to such a default. There are multiple, unique, cash flows over many years. Making these payments is more complex than a simple transfer of funds. At various times in the past, the combination of complex transactions and the explosive growth of the market has caused a logjam at financial institutions – they have been unable to get documentation out in time. Moreover, as the market has developed, legal problems have moved from the realm of anticipation to realization.

 

This course describes the complexities and evolution of the swap settlement and documentation processes. It covers the trade cycle, the participants, and the standard documentation.

  • OBJECTIVES

    On completion of this course, you will be able to:

    Outline the trade cycle for a swap

    Describe the usual format for standardized swap documentation, the role of ISDA in its development, the functions of a Master Agreement, and a Schedule to that Agreement

    Explain the process of netting in swaps settlement and the difference between the two types of swaps settlement

    Describe the evolution of standardized documentation and settlement, and the role of third parties, such as FpML and Swapswire

  • COURSE OUTLINE

    Topic 1: Executing a Trade Swap

    Who is Involved?

    A Typical Trade Cycle

    Topic 2: Swap Documentation

    Bringing Order to Chaos

    International Swaps and Derivatives Association (ISDA)

    Swap Documents

    Documentation Structure

    Trading without Documentation

    Negotiating the Schedule

    Capacity

    Legal Opinion

    Topic 3: Settling Swap Trades

    Netting

    o Example of Close-out Netting

    o Enforceability

    o Payments

    Trade Termination

    o Types of Trade Termination

    o Close-out Netting

    Topic 4: Evolution & Development of Swap Settlement

    Development of the Master Agreement

    Evolution of Swap Settlement

    Electronic Trading

    FpML

    Development in Standards

    Electronic Conformation & Matching Services

  • PREREQUISITE KNOWLEDGE

  • ESTIMATED COMPLETED TIME

    75 Minutes

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