Industry users and experienced practitioners in ISDA documents can easily identify in master agreements and trace supplements ISDA documents, such as. B the system of tacit agreement, compensation and calculation of close-out amounts. ISDA, based in New York, is the author of a frequently used master service contract, which is used internationally for over-the-counter derivatives transactions. It dictates the timetables, confirmations, definitions and credit support systems that have been agreed between the two parties and apply to all transactions between them. However, a major change in the naFMII masteragrement (2009 version) is that market participants are only obliged to use the NAFMII masteragrement (version 2009) if such a mandatory documentation requirement is required by law or by THE rules of the PRC. Trading partners now have the freedom to enter into other framework contracts for transactions that are not subject to the mandatory documentation requirement under CPP law. The concept of a «single agreement» is maintained and includes a master`s contract (complemented by an endorsement) and trade-specific confirmation for each trade. According to reports, the China National Association of Financial Market Institutional Investors plans to require counterparties to use their master contract for all yuan-denominated derivative contracts, including offshore CNH agreements. The lawyer stated that NAFMII actively worked with a combination of Chinese and international companies within different flows in order to standardize its master contract and make it acceptable for trading offshore RMB agreements. However, if the association succeeds in advancing the new agreement, it could weigh on relations with ISDA, its global counterpart, according to the lawyer. Isda and NAFMII have worked together in the past to establish the China Interbank Market Financial Derivatives Master Agreement 2007 and 2009. The Nafmii agreement enters into force immediately; there will be a transitional period of six months during which the new agreement and the two old agreements will all benefit.
Isda`s master contract can continue to be used by companies and for cross-border trade, Jiang added. Few foreign investors were willing to join the NAFMII agreement, Lai said. As a result, they were not able to effectively cover their risks. The ISDA agreement is more familiar to them and will accept and accelerate their accession to China. The new agreement covers much more land trading activities than the previous two agreements, which overlapped but generally covered only exchange rate derivatives and renminbi-denominated interest rates. The Mafmii-Meister covers these two asset classes, whether traded in renminbo or foreign currency, as well as bond derivatives, credit derivatives and gold derivatives, as well as all derivatives that are a combination of the above, Jiang said. «The significant lack of reference to underlying [derivative] equities and commodities also suggests that the PBOC recognizes that it is not competent for such derivatives,» she added.