A master agreement is a contract that outlines the terms and conditions for a long-term business relationship between two parties. In the world of finance, a master agreement is essential to streamline the legal process of handling transactions.
One of the most commonly used master agreements in the financial world is the SFT Master Agreement, created by the International Securities Lending Association (ISLA). SFT stands for securities financing transactions, which include repo agreements, securities lending, and borrowing transactions.
The SFT Master Agreement provides a standard framework for parties engaging in SFTs, reducing the need for negotiation of individual agreements for each transaction. This not only saves time but also enhances transparency and consistency in the execution of transactions.
The agreement includes provisions related to collateral, margining, termination events, and default procedures. It addresses key risks associated with SFTs, such as counterparty risk, collateral risk, and operational risk.
One of the significant benefits of the SFT Master Agreement is that it enables parties to choose the law governing the agreement, making it a flexible international framework. Parties can also choose the jurisdiction for dispute resolution, further adding to the agreement`s flexibility and relevance in the international financial community.
The SFT Master Agreement is regularly updated to reflect changes in market practices, regulatory requirements, and market conditions. The most recent version, the 2019 SFT Master Agreement, includes provisions related to margin requirements for non-centrally cleared derivatives, following the implementation of new regulations under the European Market Infrastructure Regulation (EMIR).
In conclusion, the SFT Master Agreement is a crucial tool for parties engaging in securities financing transactions. It provides a standardized framework that reduces the time and costs associated with negotiating individual agreements, enhances transparency, and addresses key risks associated with SFTs. By choosing the SFT Master Agreement, parties can benefit from a flexible international framework that is regularly updated to reflect the latest market developments and regulatory requirements.