International Swaps and Derivatives Association

The notional dollar value of outstanding interest rate swaps globally was $318 trillion at the end of 2017, according to the Bank for International Settlements.

The swaps market gave rise to ISDA, the International Swaps and Derivatives Association, the global trade association that created the core documentation for the over-the-counter derivatives world.

I'll probably do a video on the ISDA master agreement sometime soon.

Swaps today are easily the largest part of the derivatives world by notional values outstanding.

So that's it.

Again, that's NordVPN.com slash the plain bagel.

The third group of short sellers we meet earlier on in the film, I'm kind of jumping around to keep the stories linear and is brownfield investment which is two guys jamie shipley and charlie geller they're again fictional characters but their fund is based on the very real cornwall capital and at the beginning of the movie where we meet them we see them trying to get what's called an isda agreement with jp morgan i don't think the movie does a great job of explaining what an isda agreement is they just describe it as getting a seat at the big boys table But to quickly describe it, ISDA stands for International Swaps and Derivatives Association.

And an ISDA agreement is simply a set of terms between two parties that will let them buy and sell over-the-counter derivatives with one another.

Meaning that they don't have to go through an exchange or some third party.

They can agree to derivatives contracts directly with one another.

So an ISDA agreement with JP Morgan would mean that this fund would basically get access to a bunch of derivatives that they can buy and sell with JP Morgan directly.

Now, the two characters sort of have this humiliating rejection from JP Morgan because they're far too small to get an ISDA agreement.

But in the lobby of JP Morgan, they happen to cross the investor presentation of Vanette for the credit default swap that he goes on to pitch to Mark Baum.

And ultimately it's all about the movement of money between the three parties, um, when the secured party can look at the collateral, how they can monitor it, uh, and when the pledger pays in that collateral, how much it is, any custodian fees, anything like that.

Um, and without that ACCA, in substance it sits beside your ISDA and your CSA as your, like, third agreement to supplement your initial ISDA, and without that you don't have any security interest over that custodian's money because it's holding it, right, rather than holding it yourself.

Great.

Thank you.

so where do you want to go with this material what's what's next for the platform you guys launched now you have your first bit of liquidity how do you grow this stuff besides coming on on shows like this and talking to mining nerds like myself about it

i would like doofen to become the platform that is reference for uh hedging hash rate or taking a view on us rate so we will build a forward curve and become successful to everyone luxor did an amazing job and they are doing extremely well, but you require ISDA, CSA.

It's a heavy infrastructure and sometimes is very European or US centric.

Ours is much more accessible.

So we had these huge documentation backlogs, and it became clear to, uh- To us running those desks, uh, that we had a problem.

And the question is, how do you solve that problem? And I talk a lot in the book about setting up this organization called the International Swaps and Derivatives Association, and which was, at the start, was meant to help us overcome our documentation backlogs that every dealer was running at the time.

And, uh, ISDA today, 40 years later, uh, now 41 years later, uh, is a global organization which represents this, you know, $800 trillion market, which the derivatives market, uh, is today.

So the derivatives market is many, many, many, many times bigger than the US Treasury market, and, uh, uh, it is, it is truly a global market.

Why do we do that?

The reason we do that is essentially lobbying When the Bankruptcy Code that currently since 1978 has been effective in the United States now is being finalized, a lobbyist I think for what was then ISDA, referred to as the International Swap Dealers Association, now the International Swap and Derivatives Association, came to Congress and testified that a very narrow type of derivatives instrument that it should be exempted.

And it was such a narrow exemption that Congress without any examination simply included it in the bankruptcy code.

And every year since that time, ISDA has said, look, There's not been a disaster, and there's not been a disaster because of this exemption, and they have incrementally introduced, through lobbying, year after year, broader exemptions so that currently the exemption is not merely for a certain type of derivatives contract, nor is the exemption for derivatives contracts generally.

The language of the exemption is incredibly broad to cover derivatives contracts in anything that might conceivably resemble these types of contracts.

Thanks, Stephen.

Yes.

That is correct.

Next week, we take this apart mechanically.

Principal exchange, interest payment structures, settlement conventions, and the ISDA documentation that makes all of it legally enforceable.

If episode 1 told you why this instrument exists, episode 2 shows you exactly how it works, cash flow by cash flow.

This season draws on the forthcoming book, Cross-Currency Swaps and Basis Trading, by Luigi Pascal Rondanini and myself, published by Rondanini Publishing on the 15th of December.