What Is a Master Swap Agreement?
A master swap agreement is a basic, standardized contract created by the International Swaps and Derivatives Association in the late 1980s. A standard master swap agreement identifies the two parties entering the transaction; describes the terms of the arrangement, such as payment, events of default and termination; and lays out all other legalities of the deal.
Signing a master swap agreement makes it easier for the same parties to engage in additional transactions in the future because these can be based on the initial agreement.
Purpose of a Master Swap Agreement
By signing a master swap agreement, the two parties who wish to engage in a swap transaction (an agreement between two parties to exchange sequences of cash flows for a set period of time) simplify the process because the basic legal terms are already established and only the specific financial terms, such as rate and maturity, must be discussed.