USE OF ISDA DEFINITIONS: OVERVIEW OF THE 2000 ISDA DEFINITIONS August 6, 2002

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USE OF ISDA DEFINITIONSOVERVIEW OF THE
2000 ISDA DEFINITIONSAugust 6, 2002
Emilio Jiménez Vice President
and Assistant General Counsel J PMorgan
Chase Bank
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ISDA Agreement Structure

• 1992 Master Agreement (Multicurrency - Cross
  Border or Local Currency - Single Jurisdiction)
• Contains basic legal, credit and mechanical terms
• Incorporates Confirmations
• Schedule used to make elections, changes and
  additions to standard provisions

Credit Support Document(s)
Definitions

• Confirmations
• Incorporate Definitions
• Specify economic terms of each Transaction
• Include Transaction-specific modifications

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ISDA Definitions Booklets in Current Use

• 1992 ISDA Municipal Counterparty Definitions
• 1993 Commodity Derivatives Definitions
• 1996 Equity Derivatives Definitions
• 1997 Government Bond Option Definitions
• 1997 Bullion Definitions
• 1998 FX and Currency Option Definitions
• 1998 Euro Definitions
• 1999 Credit Derivatives Definition
• 2000 ISDA Definitions
• Annex
• NCU Supplement

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General Aims of ISDA Definitions

• Codify market practices and conventions
• Implementation of standard terminology
• Promote operational efficiency and ease of
  execution
• Ease of comparison
• Avoid battle of the forms

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Background and purpose of 2000 ISDA Definitions

• Purpose Provide framework for documentation of
  interest rate and currency derivative
  transactions
• Consolidates 1991 ISDA Definitions, 1998 ISDA
  Supplement, portions of 1998 Euro Definitions
• No longer includes terms for products defined in
  other definition booklets

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2000 ISDA Definitions Structure

• 2000 ISDA Definitions booklet
• Exhibits (sample confirmations)
• Annex to the 2000 ISDA Definitions
• Annex forms part of 2000 ISDA Definitions

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2000 ISDA DefinitionsProduct Coverage

• Currency Swaps
• Cross-Currency Rate Swaps
• Swaptions
• Forward Rate Agreements
• Customized Products

• Interest rate swaps
• Basis swaps
• Interest rate caps
• Interest rate floors
• Interest rate collars

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2000 ISDA DefinitionsDefinitions Coverage

• Art. 1 General Definitions
• Art. 2 Parties
• Art. 3 Terms and Dates
• Art. 4 Payments Definitions
• Art. 5 Fixed Amounts
• Art. 6 Floating Amounts
• Art. 7 Calculations of Certain Floating Rate
  Options

• Art. 8 Rounding Interpolation Discounting
• Art. 9 Payments
• Arts. 10 - 14 Options Definitions and
  Provisions Exercise and Settlement of Swaptions
• Arts. 15 and 16 Optional and Mandatory Early
  Termination
• Art. 17 Cash Settlement

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Sample Interest Rate Swap
SWAP
A
B
Fixed 6, Q, A/360
Floating-Libor, Q, A/360
n/a 100.00 2year
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Documentation of Interest Rate Swap Pursuant to
the 2000 ISDA Definitions
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Documentation of Interest Rate Swap Pursuant to
the 2000 ISDA Definitions (Contd)