Negotiation of Clearing Documentation is not Plain Sailing

Here is a link to an article which highlights some of the practical difficulties in negotiating central counterparty clearing documentation – in this case, the Cleared Derivatives Addendum, used to facilitate clearing with futures commission merchants (FCMs) in the US.

Both in the US and Europe, there is still very little convergence between the buy-side and sell-side over negotiating positions in relation to some of the key concepts within clearing documentation, such as termination events and guaranteed porting.  Given that the entire market is still getting to grips with clearing in general this is not entirely surprising.  The real message to take away from this is to avoid the trap of underestimating the amount of time and effort needed in order to complete the process of executing legal documentation when getting ready to clear.  This is particularly the case for EMIR clearing where the documentation – mainly in the form of the ISDA/FOA Cleared Client OTC Derivatives Addendum – has even less of a negotiation history than in the US.