A trading partner agreement is an agreement drawn up by two parties that have agreed to trade certain items or information. The agreement outlines the terms of the trade or trading process.
Breaking Down a Trading Partner Agreement
Trading partner agreements are often used in complex financial trade transactions. They may also be used in managing the terms for a variety of business deals, including information releases or distribution of goods.
Trading partner agreements can be developed in various formats and may include a variety of different provisions. They typically require the assistance of legal counsel or an in-house compliance officer. Covenants and provisions included in a trading partner agreement will typically detail the duties and obligations of both parties. Other important information may include a statement of procedure or statement of work outlining certain expectations.
Fourth Market Transactions
Trading in the fourth market often warrants the need for trading partner agreements. In the fourth market, institutions trade a variety of different financial instruments which can have complex structuring.
Swaps are one example of a fourth market trading instrument that will require a detailed trading partner agreement. Swaps are a form of derivative contract which allows financial institutions to manage interest rate risk by buying contracts with installment payments based on interest rate differentials.
In a swap contract, a financial institution will trade variable rate loan assets for fixed rate loan assets. A trading partner agreement would detail the terms of the contract including the date of the month when payments are due, the calculations for arriving at the interest rate differentials and the length of the swap agreement overall.
Data providers also often use trading partner agreements to manage the terms of a contract providing for regular distribution of industry data. Credit reporting agencies and health care companies are two types of entities that rely on trading partner agreements for their businesses.
Credit reporting agencies partner with a variety of businesses in the financial industry to send and receive credit reporting information. Trading partner agreements govern the information that is released, the intervals for which the information will flow, and the various technology systems that are used.
In the health care industry, a wide range of data is distributed to manage insurance payments and plans. Heath care providers of all types also partner with various institutions to exchange information that is managed and governed through trading partner agreements.
Goods and Services
Internal and domestic trade partners also regularly use trading partner agreements to manage the exchange of goods and services. These trading partner agreements will specify the terms of delivery, price values, and any tariffs.