The framework agreement allows the parties to calculate their financial risk from OTC transactions on a net basis, i.e. a party calculates the difference between what it owes to a counterparty under a framework agreement and what the counterparty owes it under the same agreement. The ISDA Master Agreement, published by the International Swaps and Derivatives Association, is the most widely used master service agreement for OTC derivatives trading internationally. It is part of a documentary framework designed to enable comprehensive and flexible documentation of OTC derivatives. The framework consists of a framework contract, a timetable, confirmations, definition brochures and credit support documentation. In 1987, ISDA prepared three documents: (i) a standard framework contract for the United States. The pre-printed framework contract is never modified, except to insert the names of the parties, but is adapted to the framework agreement through the use of the calendar, a document containing elections, additions and amendments to the framework agreement. Russian courts have allowed a Russian company to unilaterally terminate an interest rate swap and “leave” without paying a cancellation fee. This controversial decision is contrary to market practice and, critics say, shows a fundamental misunderstanding about how derivative contracts work. The Russian subsidiary of Unicredit Bank (Unicredit) and a Russian company, LLC “Hermitage Development” (Hermitage2), concluded the framework contract on the general conditions for the execution of derivatives transactions under Russian law (the framework contract) and concluded an interest rate swap on this basis. Hermitage needed the swap to cover its exposure to a variable interest rate to be paid to Unicredit as part of a loan agreement.
After the loan amount to be paid was reduced, Hermitage Unicredit requested to also change the terms of interest rate swap so that the nominal amount of the swap was correlated with the new loan amount, but Unicredit refused to do so. . . .