On October 11, 2013, ISDA® published the 2013 Account Control Agreement (ISDA ACA), a standard template document designed to supplement and form a part of an ISDA Master Agreement (ISDA Master) to facilitate compliance with certain initial margin segregation requirements for uncleared swaps under Section 724(c) Title VII of the Dodd-Frank Act, codified in Section 4s(l) of the CEA (see Practice Note, The Dodd-Frank Act: Derivatives Margin Collateral Rules: Optional Segregation of Uncleared Swaps Initial Margin). Segregation of margin collateral has become a hot-button topic for regulators and market participants alike because of the Lehman, MF Global and other recent dealer failures in which posted swap margin collateral was misplaced and hard to trace.

The ISDA ACA is a three-way standardized agreement between the parties to the swap and the securities intermediary that acts as custodian of the initial margin collateral. The ISDA ACA details the how the securities intermediary must treat initial margin collateral posted by the pledgor (referred to in the ISDA ACA and in other ISDA documents as the "independent amount" or "IA"), generally requiring that the intermediary only take action with respect to the collateral at the request of the parties, as specified in the agreement. The party posting the IA is referred to in the agreement as the pledgor and the party holding the collateral is the secured party. Note that under certain Title VII rules, certain parties could be required to each collect initial margin collateral from one another. In that case, a separate ISDA ACA (or other custodial agreement) would be required for each IA exchange.

During the Lehman, MF Global and other recent dealer failures, posted customer swap collateral was not segregated from the posted collateral of other customers and, in many cases, from the dealer's own funds. The collateral was transferred and rehypothecated among the dealers' affiliates, leaving the customer pledgor with only an unsecured claim for the value of its posted collateral in the dealer's bankruptcy proceedings. Dodd-Frank margin collateral rules are designed to address this issue and the ISDA ACA is designed to facilitate compliance with those rules.

Mechanically, the ISDA ACA is a standard account control agreement, which utilizes notices of exclusive control (NOECs). NOECs may be used by the non-defaulting party where there is a counterparty default under the ISDA Master to which the ISDA ACA relates.

The ISDA ACA, among other things:

Since the inception of Dodd-Frank initial margin segregation rules the market has faced a challenge in finding uniformity in a form of custodial agreement. Early indications are that the ISDA ACA will become that consensus draft custodial document.