On Legal Application Of ISDA Master Agreement In China

ISDA Master Agreement is a worldwide template widely used for derivatives transaction in thecapital market. ISDA Master Agreement is drafted under Common Law and therefore, when applied withthe China’s law as governing law, it’s necessary to make an analysis of the legal conflicts between ISDAMaster Agreement and China’s law, and suggest the legal solutions.This thesis focuses on the four key issues of ISDA Master Agreement: events of default, events oftermination, the concept of single agreement, and close-out netting, among which events of default andclose-out netting are more significant to be discussed since they seriously conflict with China’ law withdifferent legal ideas.This thesis falls into two parts, with the first part being Events of Default and Event of Terminationof ISDA Master Agreement and the second part being Single Agreement and Close-out Netting. Events ofDefault and Events of Termination are the core issues of ISDA Master Agreement since they’re closelyrelated in the legal sense. Single Agreement is the basis of the other systems of ISDA Master Agreementwhile close-out netting can only be effectively applied under single agreement concept. Accordingly thecategorization of the four issues into two parts is based on their relatedness.Chapter One of the First Part focuses on the legal conflicts between events of default of ISDAMaster Agreement and China’s law, including serious conflicts relating to credit default and bankruptcyand general conflicts relating to repudiation of agreement, misrepresentation and agreed termination uponthe defective performance, together with suggested legal solutions.Chapter Two of the First Part centers on disagreement between Events of Termination of ISDA Master Agreement and the China’s law, also with suggested legal solutions. Compared with the Events ofDefault, the Events of Termination do not seriously conflict with China’s Law. The thesis divides theEvents of Termination into agreed termination and termination specified by law, together with theanalysis and suggested legal solutions.Chapter One of the Second Part elaborates the aim of why ISDA Master Agreement has the conceptof single agreement, and a comparative analysis between single agreement and the continued agreementunder Continental Law, reaching the conclusion that the concept of single agreement is in compliancewith China’s law.Chapter Two of the Second Part hinges on close-out netting, interactive computation and set-off,especially on the relationship between close-out netting and set-off. The focus of this chapter is theconflicts between close-out netting and China’s bankruptcy law.