The frameworks of standard documentation for OTC Derivatives, Securities Lending and Repurchase Agreements have been tested by a succession of financial crises since they were widely adopted in the 1990’s. The Asian currency crisis, the Russian debt default, the Global financial crisis and the European sovereign debt crisis have all forced financial services firms back to the agreements to understand the implications.
Covid-19 is the trigger for the latest trawl through the contracts, in anticipation of the impact the global pandemic will have on the markets. There aren’t really any surprises in the set of provisions that are of interest across a range of Master Agreements (such as the ISDA, GMRA and GMSLA):
- Termination Events and Events of Default – including granular information on grace periods and fallback provisions
- Additional Termination Events – particularly those linked to market volatility such as ratings downgrade triggers and net asset value triggers
- Delivery of Notices – which may be far from straightforward in a lockdown, especially if the master agreement doesn’t permit email as a valid method of service
- Cross Default – breaches in other agreements triggered by market disruption and volatility
These same provisions (and the same contracts) will almost certainly have been the focus of previous fire-drills as well as ad-hoc business-critical queries. Finding the contracts and subsequent amendments and pulling the data into a report is a time-consuming and error-prone task, and certainly not one that you want to repeat every couple of years. Sure, due-diligence tools can help speed up a review by locating relevant clauses – but in a pressure situation what you really want is granular, trusted data that you can instantly make use of.
Logical Construct’s Lyncs platform breaks the cycle of contract data abstraction, enabling firms to rapidly react to events and to be pro-active in preparing for the unexpected.