Documentation developments: Section 2(a)(iii) of the ISDA Master Agreement

Key Points:
ISDA's clarification will put a time limit on how long the non-defaulting party is entitled to suspend its obligations under Section 2(a)(iii).

The legal session at the ISDA AGM covered a broad range of documentation developments, including updates to the ISDA Equity Derivatives Definitions and the development of a new Master Bridging Agreement to allow netting of cleared (through central counterparties) and uncleared products governed by separate ISDA Master Agreements.

However, the key focus of the legal session was ISDA's response to the growing uncertainty in the OTC derivatives market over the correct interpretation of Section 2(a)(iii) of the ISDA Master Agreement, which deals with a party's right not to pay or deliver if there is a default (or potential default event) with respect to its counterparty.