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Arbitrate Don’t Litigate?

The past few years have seen a marked increase in the use of arbitration in the financial sector, including in relation to over-the-counter (OTC) derivatives transactions documented under the 1992 and 2002 ISDA Master Agreements.  A key driver has been the increase in cross-border transactions involving parties established in or operating from emerging jurisdictions.  Both the 2002 and 1992 ISDA Master Agreements provide for jurisdiction of the English or New York courts which is less attractive to parties to these transactions.  This development has led to an extensive consultation amongst ISDA’s members on the use of arbitration under an ISDA Master Agreement which began in 2011.  ISDA received positive feedback from members on potential measures to make arbitration a more attractive option in ISDA Master Agreements including the publication of model arbitration clauses and addressing concerns regarding difficulties in locating qualified arbitrators.

Last week, ISDA announced that a pre-publication draft of the 2013 ISDA Arbitration Guide has been finalised.  The Guide is intended to provide guidance on the use of an arbitration clause with either the ISDA 2002 or 1992 (Multicurrency-Cross Border) Master Agreement and includes a range of model arbitration clauses.  In addition, P.R.I.M.E. Finance prepared the set of “ISDAfied” arbitration clauses for six seats based on the P.R.I.M.E Finance Arbitration Rules including:  London, New York, Singapore, Hong Kong, Paris and Geneva or Zurich.  Official publication of the 2013 ISDA Arbitration Guide is expected in September.   Market participants are increasingly giving serious consideration to amending ISDA Master Agreements to include arbitration clauses, particularly with respect to emerging market counterparties.  This is primarily due to the advantages which arbitration enjoys over traditional litigation, as a result of the 1958 New York Convention, in terms of international enforceability.


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