On December 6, 2011, ISDA® published sample terms and provisions (the Sample Tri-Party IA Provisions) that may be used to amend ISDA documentation to accommodate new collateral segregation requirements under the Dodd-Frank Act. These rules require that swap dealers and major swap participants (MSPs) provide their counterparties with the option of having independent third-party custodians hold initial margin collateral posted by such counterparties to cover their obligations under uncleared, over-the-counter derivatives transactions. The Sample Tri-Party IA Provisions may be used to amend any ISDA Credit Support Annex subject to New York law if the counterparty elects such segregation. Initial margin collateral is referred to in the CSA as the independent amount or "IA."

ISDA published the following in connection with this initiative:

The Sample Tri-Party IA Provisions were drafted primarily to accommodate requirements under Sections 724(c) and 763(d) of the Dodd-Frank Act, which require swap dealers and MSPs, as well as security-based swap dealers and major security-based swap participants, to provide their swap counterparties with the option of having third-party custodians hold the independent amounts that the countertparties post under these swaps. ISDA notes that the Sample Tri-Party IA Provisions are appropriate only for IA delivered between two parties to an uncleared OTC derivatives contract. In addition, the amendment applies only to CSAs that are subject to New York law.

The Sample Tri-Party IA Provisions are intended for use in conjunction with the negotiation of tri-party collateral control agreements. They contain the following optional sections:

Note that Section 4s(l) of the CEA sets out the rights of swap counterparties to SDs and MSPs with respect to the segregation of money, securities or other property used to margin, guarantee or otherwise secure uncleared swaps. CFTC Regulation 23.701 covers the obligations of SDs and MSPs with respect to counterparty notification of these segregation rights.

For a detailed discussion of these collateral segregation rules, see Practice Note, US Derivatives Regulation: Margin Collateral Rules: Title VII Rules on Segregation of Uncleared Swap Margin Collateral.

To learn more about other ISDA documents and the effect of the Dodd-Frank Act on ISDA documentation, see Practice Notes, ISDA Documents: Overview (US) and US Derivatives Regulation: Swap Documentation Checklist.

For more on swap collateral issues, see Practice Note, The ISDA Master Agreement: Negotiating the ISDA Credit Support Annex (CSA).

For information on a recent announcement by ISDA of its plans for a new Standard Credit Support Annex (SCSA), see Legal Update, Standard Credit Support Annex (SCSA) for OTC Derivatives Proposed by ISDA.