International Foreign Exchange and Currency Option (IFXCO ... · and Currency Option Definitions, published by the International Swaps and Derivatives Association, Inc., EMTA, Inc.,

International ForeignExchange and CurrencyOption Master Agreement

81

Published as of June 1, 2005

by the Foreign Exchange Committee

in association with the British Bankers’ Association,the Canadian Foreign Exchange Committee, and theJapanese Bankers Association

IFXCO

Parties may adhere to these IFXCO Terms (the “Terms”) and be bound by their termsby completing and exchanging with each other an agreement that these Terms shallgovern FX Transactions and Currency Option Transactions between them substan-tially in the form of the IFXCO Adherence Agreement published with these Terms(the “Adherence Agreement”).

Capitalized terms used herein have the meanings given to them in the 1998 FXand Currency Option Definitions, published by the International Swaps andDerivatives Association, Inc., EMTA, Inc., and the Foreign Exchange Committee, asamended as of the date of the Adherence Agreement (the “Definitions”), unlessanother meaning has been given in Annex 1. References herein to Sections,Annexes, and the like are references to Sections, Annexes, and the like of theseTerms unless otherwise provided.

Section 1.FX Transactions and Currency Option Transactions

1.1. Scope of the Agreement; Offices.(a) The Parties may enter into (i) FX Transactions for such quantities of such Currencies

as may be agreed upon subject to the terms of the Agreement; and (ii) CurrencyOption Transactions for such Premiums, with such Expiration Dates, at such StrikePrices, and for the purchase or sale of such quantities of such Currencies as may beagreed upon subject to the terms of the Agreement; provided that neither Partyshall be required to enter into any FX Transaction or Currency Option Transactionwith the other Party (other than in connection with an exercised Currency OptionTransaction). Unless otherwise agreed to in writing by the Parties, each FX

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International Foreign Exchange andCurrency Option Master Agreement

IFXCOTerms

84 FOREIGN EXCHANGE COMMITTEE 2005 ANNUAL REPORT

Transaction and Currency OptionTransaction entered into between Offices(as defined below) of the Parties on or afterthe Effective Date shall be governed by theAgreement. Each FX Transaction andCurrency Option Transaction between anytwo Offices of the Parties outstanding onthe Effective Date shall also be governedby the Agreement unless otherwise speci-fied in Part I of the Adherence Agreement.

(b) The office through which a Party entersinto an FX Transaction or Currency OptionTransaction (an “Office”) shall be one ofthe Offices for that Party in Part II of theAdherence Agreement, as specified for aparticular transaction in the relevantConfirmation or as otherwise agreed to bythe Parties in writing, and, if an Office forthat Party is not specified in theConfirmation or otherwise agreed to bythe Parties in writing (and regardless ofsuch specification in such Part II), its heador home office. Each Party that enters intoan FX Transaction or Currency OptionTransaction through an Office other thanits head or home office represents to andagrees with the other Party that, notwith-standing the place of booking or its juris-diction of incorporation or organization,its obligations are the same in terms ofrecourse against it as if it had entered intothe FX Transaction or Currency OptionTransaction through its head or homeoffice, except that a Party shall not haverecourse to the head or home office of theother Party in respect of any payment ordelivery deferred pursuant to Section 7.3for so long as the payment or delivery is sodeferred. This representation and agree-ment shall be deemed to be repeated byeach Party on each date on which theParties enter into an FX Transaction orCurrency Option Transaction.

1.2. Single Agreement.These Terms, as adopted through and in theAdherence Agreement (the Terms and theAdherence Agreement being the “MasterAgreement”), the terms agreed to betweenthe Parties with respect to each FX Transactionand Currency Option Transaction (and, to theextent recorded in a Confirmation, each suchConfirmation), and all amendments to any ofsuch items shall together form the agreementbetween the Parties (the “Agreement”) andshall together constitute a single agreementbetween the Parties. The Parties acknowledgethat all FX Transactions and Currency OptionTransactions are entered into in reliance uponsuch fact, it being understood that the Partieswould not otherwise enter into any FXTransaction or Currency Option Transaction.

1.3. Confirmations.FX Transactions and Currency OptionTransactions shall be promptly confirmed bythe Parties by Confirmations exchanged bymail, telex, facsimile, or other electronicmeans from which it is possible to produce ahard copy. The failure by a Party to issue aConfirmation shall not prejudice or invalidatethe terms of any FX Transaction or CurrencyOption Transaction. For avoidance of doubt,if the Parties send instructions for the settle-ment of a Transaction through CLS Bank, or forexecution of a Transaction through any elec-tronic trading platform, and either Party doesnot send its own Confirmation of suchTransaction to the other Party (“nonsendingParty”), the CLS or electronic trading platformmatching notification shall constitute aConfirmation of such Transaction by any suchnonsending Party.

1.4. Inconsistencies.In the event of any inconsistency between theprovisions of the Adherence Agreement andthe provisions of the Terms, the AdherenceAgreement shall prevail. In the event of anyinconsistency between the terms of aConfirmation and the provisions of the MasterAgreement, (a) in the case of an FX Transaction,the provisions of the Master Agreement shallprevail, and the Confirmation shall not modifythe provisions of the Master Agreement; and(b) in the case of a Currency OptionTransaction, the agreed upon terms of theConfirmation shall prevail as to such CurrencyOption Transaction, and the other terms of theMaster Agreement shall be deemed modifiedwith respect to such Currency OptionTransaction, except for the manner of confir-mation under Section 1.3. A Confirmationamending the terms of a Transaction accordingto Section 9.11 shall be deemed consistent withthe provisions of the Master Agreement.

Section 2.Exercise of Currency OptionTransactionsCurrency Option Transactions shall be exer-cised as provided in the Definitions, providedthat Notice of Exercise may not be given byfacsimile transmission.

Section 3.Settlement and Netting ofTransactions

3.1. Settlement of Transactions.(a) Each Transaction shall be settled as provided

in the Definitions and the Confirmationrelated to such Transaction. For avoidance

of doubt, settlement by submission ofinstructions with respect to any Transactionthrough the Continuous Linked SettlementSystem of CLS Bank shall constitute settle-ment of such Transaction when the settle-ment thereunder is final and, in the case ofpartial settlement, to the extent thereof.

(b) In the event a Party shall not make delivery ofa Currency under a Transaction when due, itshall compensate the other Party for eachday overdue at a rate per annum equal tosuch other Party’s cost of funds as reasonablydetermined by such other Party.

3.2. Settlement Netting.(a) Notwithstanding the foregoing, if the Parties

agree in Part III of the AdherenceAgreement that this Section 3.2 is appli-cable, and if, on any date, more than onedelivery of a particular Currency underCurrency Obligations is to be madebetween a pair of Offices, then each Partyshall aggregate the amounts of suchCurrency deliverable by it and only the dif-ference between these aggregate amountsshall be delivered by the Party owing thelarger aggregate amount to the other Party,and, if the aggregate amounts are equal, nodelivery of the Currency shall be made.

(b) The provisions of this Section 3.2 shall notapply if a Closeout Date has occurred, ora voluntary or involuntary InsolvencyProceeding or action of the kind describedin Section 5(b), (c), or (d) has occurred,without being dismissed in relation toeither Party.

(c) The provisions of this Section 3.2 shallapply notwithstanding that either Partymay fail to record the new CurrencyObligation in its books.

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(d) The provisions of this Section 3.2 are subjectto any cutoff date and cutoff time agreedupon between the applicable Offices ofthe Parties.

Section 4.Representations, Warranties, andCovenants

4.1. Representations and Warranties.Each Party represents and warrants to the otherParty as of the Effective Date and as of the dateof each FX Transaction and each CurrencyOption Transaction that: (a) it has authority toenter into the Agreement (including such FXTransaction or Currency Option Transaction, asthe case may be); (b) the persons entering intothe Agreement (including such FX Transactionor Currency Option Transaction, as the casemay be) on its behalf have been duly autho-rized to do so; (c) the Agreement (includingsuch FX Transaction or Currency OptionTransaction, as the case may be) is binding uponit and enforceable against it in accordance withits terms (subject to applicable bankruptcy,reorganization, insolvency, moratorium, orsimilar laws affecting creditors’ rights generallyand applicable principles of equity) and doesnot and shall not violate the terms of any agree-ments to which such Party is bound; (d) noEvent of Default, or event which, with notice orlapse of time or both, would constitute an Eventof Default, has occurred and is continuing withrespect to it; (e) it acts as principal in enteringinto each FX Transaction and Currency OptionTransaction and exercising each and everyCurrency Option Transaction; and (f) if theParties have so specified in Part IV of theAdherence Agreement, it makes the represen-tations and warranties set forth in such Part IV.

4.2. Covenants.Each Party covenants to the other Party that:(a) it shall at all times obtain and comply withthe terms of, and do all that is necessary tomaintain in full force and effect all authoriza-tions, approvals, licenses, and consentsrequired to enable it lawfully to perform itsobligations under, the Agreement; (b) it shallpromptly notify the other Party of the occur-rence of any Event of Default with respect toitself or any Credit Support Provider in relationto it; and (c) if the Parties have set forth addi-tional undertakings or covenants in Part IV orPart V of the Adherence Agreement, it makesthe undertakings or covenants set forth in suchParts.

Section 5.Events of Default“Event of Default” means the occurrence ofany of the following with respect to a Party(the “Defaulting Party,” the other Party beingthe “Nondefaulting Party”):

(a) the Defaulting Party (i) defaults in any pay-ment when due under the Agreement(including, but not limited to, a Premiumpayment) to the Nondefaulting Party, withrespect to any Currency Obligation orCurrency Option Transaction, and suchfailure continues for one (1) Business Dayafter the Nondefaulting Party has given theDefaulting Party written notice of nonpay-ment; or (ii) fails to perform or complywith any other obligation assumed by itunder the Agreement and such failure iscontinuing thirty (30) days after theNondefaulting Party has given theDefaulting Party written notice thereof;


(b) the Defaulting Party commences a volun-tary Insolvency Proceeding or takes anycorporate action to authorize any suchInsolvency Proceeding;

(c) a governmental authority or self-regulatoryorganization having jurisdiction overeither the Defaulting Party or its assets inthe country of its organization or principaloffice (i) commences an InsolvencyProceeding with respect to the DefaultingParty or its assets, or (ii) takes any actionunder any bankruptcy, insolvency, orother similar law or any banking, insur-ance, or similar law or regulation govern-ing the operation of the Defaulting Partythat may prevent the Defaulting Party fromperforming its obligations under theAgreement as and when due;

(d) an involuntary Insolvency Proceeding iscommenced with respect to theDefaulting Party or its assets by a personother than a governmental authority orself-regulatory organization having juris-diction over either the Defaulting Party orits assets in the country of its organizationor principal office and such InsolvencyProceeding (i) results in the appointmentof a Custodian, or a judgment of insolvencyor bankruptcy, or the entry of an order forwinding-up, liquidation, reorganization, orother similar relief; or (ii) is not dismissedwithin fifteen (15) days of its institution orpresentation;

(e) the Defaulting Party is bankrupt or insolvent,as defined under any bankruptcy or insol-vency law applicable to it;

(f ) the Defaulting Party fails, or otherwise isunable or admits in writing that it is unable,to pay its debts as they become due;

(g) the Defaulting Party or any Custodianacting on behalf of the Defaulting Partydisaffirms, disclaims, or repudiates anyCurrency Obligation or Currency OptionTransaction;

(h) any representation or warranty made orgiven or deemed made or given by theDefaulting Party pursuant to theAgreement or any Credit SupportDocument proves to have been false ormisleading in any material respect as at thetime it was made or given or deemedmade or given;

(i) the Defaulting Party consolidates, or amal-gamates with, or merges into, or transfersall or substantially all its assets to anotherentity and (i) the creditworthiness of theresulting, surviving, or transferee entity ismaterially weaker than that of theDefaulting Party prior to such action; or(ii) at the time of such consolidation, amal-gamation, merger, or transfer the resulting,surviving, or transferee entity fails toassume all the obligations of theDefaulting Party under the Agreement byoperation of law or pursuant to an agree-ment satisfactory to the NondefaultingParty;

(j) (i) a default, event of default, or other similarcondition or event (however described), inrespect of such Party or any Credit SupportProvider of such Party under one or moreagreements or instruments relating toSpecified Indebtedness of either of them(individually or collectively), where theaggregate principal amount of such agree-ments or instruments, either alone ortogether with the amount, if any, referredto in clause (j)(ii) below, is not less than theapplicable Threshold Amount (as specified

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in Part VI of the Adherence Agreement)that has resulted in such SpecifiedIndebtedness becoming, or becomingcapable at such time of being declared,due, and payable under such agreementsor instruments before it would otherwisehave been due and payable; or (ii) a defaultby such Party or such Credit SupportProvider (individually or collectively) inmaking one or more payments under suchagreements or instruments on the due datefor payment (after giving effect to any appli-cable notice requirement or grace period)in an aggregate amount, either alone ortogether with the amount, if any, referredto in clause (j)(i) above, of not less than theapplicable Threshold Amount;

(k) the Defaulting Party is in breach of ordefault under any Specified Transactionand any applicable grace period haselapsed, and there occurs any liquidationor early termination of, or acceleration ofobligations under, that Specified Transaction,or the Defaulting Party (or any Custodianon its behalf ) disaffirms, disclaims, orrepudiates the whole or any part of aSpecified Transaction;

(l) (i) any Credit Support Provider of theDefaulting Party or the Defaulting Party itselffails to comply with or perform any agree-ment or obligation to be complied with orperformed by it in accordance with theapplicable Credit Support Document andsuch failure is continuing after any appli-cable grace period has elapsed; (ii) anyCredit Support Document relating to theDefaulting Party expires or ceases to be infull force and effect prior to the satisfactionof all obligations of the Defaulting Partyunder the Agreement, unless otherwiseagreed to in writing by the NondefaultingParty; (iii) the Defaulting Party or any Credit

Support Provider of the Defaulting Party (or,in either case, any Custodian acting on itsbehalf) disaffirms, disclaims, or repudiates,in whole or in part, or challenges the validityof any Credit Support Document; (iv) anyrepresentation or warranty made or givenor deemed made or given by any CreditSupport Provider of the Defaulting Partypursuant to any Credit Support Documentproves to have been false or misleading inany material respect as at the time it wasmade or given or deemed made or given;or (v) any event set out in subparagraphs (b)to (g) or subparagraphs (i) to (k) aboveoccurs in respect of any Credit SupportProvider of the Defaulting Party; or

(m) any other condition or event specified inPart VII of the Adherence Agreement.

Section 6.Closeout and Liquidation

6.1. Manner of Closeout andLiquidation.

(a) Closeout. If an Event of Default hasoccurred and is continuing, then theNondefaulting Party shall have the right toclose out all, but not less than all, outstand-ing Currency Obligations (including anyCurrency Obligation that has not been per-formed and in respect of which theSettlement Date is on or precedes theCloseout Date) and Currency OptionTransactions, except to the extent that in thegood faith opinion of the NondefaultingParty certain of such Currency Obligationsor Currency Option Transactions may notbe closed out under applicable law. Suchcloseout shall be effective upon receipt bythe Defaulting Party of notice that theNondefaulting Party is terminating suchCurrency Obligations and Currency Option


Transactions. Notwithstanding the fore-going, unless otherwise agreed to by theParties in Part VIII of the AdherenceAgreement, in the case of an Event ofDefault in Section 5 (b), (c), or (d) withrespect to a Party and, if agreed to by theParties in Part VII of the AdherenceAgreement, in the case of any other Event ofDefault specified and so agreed to in Part VIIwith respect to a Party, closeout shall beautomatic as to all outstanding CurrencyObligations and Currency OptionTransactions, as of the time immediatelypreceding the institution of the relevantInsolvency Proceeding or action. TheNondefaulting Party shall have the right toliquidate such closed-out CurrencyObligations and Currency OptionTransactions, as provided below.

(b) Liquidation of Currency Obligations.Liquidation of Currency Obligations termi-nated by closeout shall be effected asfollows:

(i) Calculating Closing Gain or Loss. TheNondefaulting Party shall calculate ingood faith, with respect to each suchterminated Currency Obligation,except to the extent that in the goodfaith opinion of the NondefaultingParty certain of such CurrencyObligations may not be liquidated asprovided herein under applicable law,as of the Closeout Date or as soonthereafter as reasonably practicable,the Closing Gain, or, as appropriate,the Closing Loss, as follows:

(A) for each Currency Obligationcalculate a “Closeout Amount” asfollows:

(1) in the case of a CurrencyObligation whose SettlementDate is the same as or is laterthan the Closeout Date, theamount of such CurrencyObligation; or

(2) in the case of a CurrencyObligation whose SettlementDate precedes the CloseoutDate, the amount of suchCurrency Obligation increased,to the extent permitted byapplicable law, by addinginterest thereto from andincluding the Settlement Dateto but excluding the CloseoutDate at overnight LIBOR; and

(3) for each such amount in aCurrency other than theNondefaulting Party’s Termi-nation Currency, convert suchamount into the NondefaultingParty’s Termination Currency atthe rate of exchange at which,at the time of the calculation, theNondefaulting Party can buysuch Termination Currency withor against the Currency of therelevant Currency Obligation fordelivery (x) if the Settlement Dateof such Currency Obligation ison or after the Spot Date as ofsuch time of calculation for theTermination Currency, on theSettlement Date of that CurrencyObligation; or (y) if such Settle-ment Date precedes such SpotDate, for delivery on such SpotDate (or, in either case, if suchrate of exchange is not available,

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conversion shall be accom-plished by the NondefaultingParty using any commerciallyreasonable method); and

(B) determine in relation to eachSettlement Date: (1) the sum of allCloseout Amounts relating toCurrency Obligations under whichthe Nondefaulting Party wouldotherwise have been entitled toreceive the relevant amount onthat Settlement Date; and (2) thesum of all Closeout Amountsrelating to Currency Obligationsunder which the NondefaultingParty would otherwise have beenobliged to deliver the relevantamount to the Defaulting Party onthat Settlement Date; and

(C) if the sum determined under (B)(1)is greater than the sumdetermined under (B)(2), thedifference shall be the ClosingGain for such Settlement Date; ifthe sum determined under (B)(1) isless than the sum determinedunder (B)(2), the difference shallbe the Closing Loss for suchSettlement Date.

(ii) Determining Present Value. To theextent permitted by applicable law,the Nondefaulting Party shall adjustthe Closing Gain or Closing Loss foreach Settlement Date falling after theCloseout Date to present value bydiscounting the Closing Gain orClosing Loss from and including theSettlement Date to but excluding theCloseout Date, at LIBOR, with respectto the Nondefaulting Party’s Termina-tion Currency as at the Closeout Date

or at such other rate as may beprescribed by applicable law.

(iii) Netting. The Nondefaulting Party shallaggregate the following amounts sothat all such amounts are netted into asingle liquidated amount payable toor by the Nondefaulting Party: (A) thesum of the Closing Gains for allSettlement Dates (discounted topresent value, where appropriate, inaccordance with the provisions ofSection 6.1(b)(ii)) (which for thepurposes of the aggregation shall be apositive figure); and (B) the sum of theClosing Losses for all Settlement Dates(discounted to present value, whereappropriate, in accordance with theprovisions of Section 6.1(b)(ii)) (whichfor the purposes of the aggregationshall be a negative figure).

(c) Liquidation of Currency OptionTransactions. To liquidate unexercisedCurrency Option Transactions and exer-cised Currency Option Transactions to besettled at their In-the-Money Amountsthat have been terminated by closeout,the Nondefaulting Party shall:

(i) Calculating Settlement Amount.Calculate in good faith with respect toeach such terminated CurrencyOption Transaction, except to theextent that in the good faith opinionof the Nondefaulting Party certain ofsuch Currency Option Transactionsmay not be liquidated as providedherein under applicable law, as of theCloseout Date or as soon asreasonably practicable thereafter, asettlement amount for each Partyequal to the aggregate of:


(A) with respect to each CurrencyOption Transaction purchased bysuch Party, the current marketpremium for such CurrencyOption Transaction;

(B) with respect to each CurrencyOption Transaction sold by suchParty, any unpaid Premium,provided that, if the CloseoutDate occurs before the PremiumPayment Date, such amount shallbe discounted from and includingthe Premium Payment Date to butexcluding the Closeout Date at arate equal to LIBOR on theCloseout Date and, if the CloseoutDate occurs after the PremiumPayment Date, to the extentpermitted by applicable law, thesettlement amount shall includeinterest on any unpaid Premiumfrom and including the PremiumPayment Date to but excluding theCloseout Date in the sameCurrency as such Premium atovernight LIBOR;

(C) with respect to any exercisedCurrency Option Transaction to besettled at its In-the-Money Amount(whether or not the Closeout Dateoccurs before the Settlement Datefor such Currency Option Trans-action), any unpaid amount due tosuch Party in settlement of suchCurrency Option Transaction and, ifthe Closeout Date occurs after theSettlement Date for such CurrencyOption Transaction, to the extentpermitted by applicable law,interest thereon from and includingthe applicable Settlement Date to

but excluding the Closeout Date atovernight LIBOR; and

(D) without duplication, the amountthat the Nondefaulting Partyreasonably determines in goodfaith, as of the Closeout Date or asof the earliest date thereafter thatis reasonably practicable, to be itsadditional losses, costs, andexpenses in connection with suchterminated Currency OptionTransaction, for the loss of itsbargain, its cost of funding, or theloss incurred as a result ofterminating, liquidating, obtaining,or reestablishing a delta hedge orrelated trading position withrespect to such Currency OptionTransaction;

(ii) Converting to Termination Currency.Convert any settlement amountcalculated in accordance with clause (i)above in a Currency other than theNondefaulting Party’s TerminationCurrency into such TerminationCurrency at the Spot Rate determinedby the Nondefaulting Party at which, atthe time of the calculation, theNondefaulting Party could enter into acontract in the foreign exchangemarket to buy the Nondefaulting Party’sTermination Currency in exchange forsuch Currency (or, if such Spot Rate isnot available, conversion shall beaccomplished by the NondefaultingParty using any commercially reason-able method); and

(iii) Netting. Net such settlement amountswith respect to each Party so that allsuch amounts are netted to a single

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liquidated amount payable by oneParty to the other Party.

(d) Final Netting. The Nondefaulting Partyshall net (or, if both liquidated amounts arepayable by one Party, add) the liquidatedamounts payable under Sections 6.1(b) and6.1(c) with respect to each Party so thatsuch amounts are netted (or added) to asingle liquidated amount payable by oneParty to the other Party as a settlementpayment.

6.2. Setoff Against Credit Support.Where closeout and liquidation occur inaccordance with Section 6.1, the NondefaultingParty shall also be entitled (a) to set off the netpayment calculated in accordance withSection 6.1(d), which the Nondefaulting Partyowes to the Defaulting Party, if any, against anycredit support or other collateral (“CreditSupport”) held by the Defaulting Party pursuantto a Credit Support Document or otherwise(including the liquidated value of any noncashCredit Support), in respect of theNondefaulting Party’s obligations under theAgreement; or (b) to set off the net paymentcalculated in accordance with Section 6.1(d),which the Defaulting Party owes to theNondefaulting Party, if any, against any CreditSupport held by the Nondefaulting Party(including the liquidated value of any noncashCredit Support), in respect of the DefaultingParty’s obligations under the Agreement; pro-vided that, for purposes of either such setoff,any Credit Support denominated in a Currencyother than the Nondefaulting Party’sTermination Currency shall be converted intosuch Termination Currency at the rate specifiedin Section 6.1(c)(ii).

6.3. Other Transactions.Where closeout and liquidation occur inaccordance with Section 6.1, the Non-defaulting Party shall also be entitled to closeout and liquidate, to the extent permitted byapplicable law, any other foreign exchangetransaction or currency option transactionentered into between the Parties, which isthen outstanding in accordance with the pro-visions of Section 6.1, with each obligationof a Party to deliver a Currency under such aforeign exchange transaction being treated as ifit were a Currency Obligation (including exer-cised currency option transactions, providedthat cash-settled currency option transactionsshall be treated analogously to currency optiontransactions to be settled at their In-the-Money Amount) and each unexercisedcurrency option transaction being treated as ifit were a Currency Option Transaction underthe Agreement.

6.4. Payment and Late Interest.The net amount payable by one Party to theother Party, pursuant to the provisions ofSections 6.1 and 6.3 above, shall be paid bythe close of business on the Business Day fol-lowing the receipt by the Defaulting Party ofnotice of the Nondefaulting Party’s settlementcalculation, with interest at overnight LIBORfrom and including the Closeout Date to butexcluding such Business Day (and convertedas required by applicable law into any otherCurrency, any costs of conversion to be borneby, and deducted from any payment to, theDefaulting Party). To the extent permitted byapplicable law, any amounts owed but notpaid when due under this Section 6 shall bearinterest at overnight LIBOR (or, if conversion is


required by applicable law into some otherCurrency, either overnight LIBOR, withrespect to such other Currency or such otherrate as may be prescribed by such applicablelaw) for each day for which such amountremains unpaid. Any addition of interest ordiscounting required under this Section 6shall be calculated on the basis of a year ofsuch number of days as is customary for trans-actions involving the relevant Currency in therelevant foreign exchange market.

6.5. Suspension of Obligations.Without prejudice to the foregoing, so long as aParty shall be in default in payment or perfor-mance to the other Party under the Agreementand the other Party has not exercised its rightsunder this Section 6, the other Party may, at itselection and without penalty, suspend its obli-gation to perform under the Agreement.

6.6. Expenses.The Defaulting Party shall reimburse theNondefaulting Party in respect of all out-of-pocket expenses incurred by the NondefaultingParty (including fees and disbursements ofcounsel, including attorneys who may beemployees of the Nondefaulting Party) in con-nection with any reasonable collection or otherenforcement proceedings related to the pay-ments required under the Agreement.

6.7. Reasonable Pre-estimate.The Parties agree that the amounts recover-able under this Section 6 are a reasonablepre-estimate of loss and not a penalty. Suchamounts are payable for the loss of bargain

and the loss of protection against future risksand, except as otherwise provided in theAgreement, neither Party shall be entitled torecover any additional damages as a conse-quence of such losses.

6.8. No Limitation of Other Rights;Setoff.

The Nondefaulting Party’s rights under thisSection 6 shall be in addition to, and not inlimitation or exclusion of, any other rights thatthe Nondefaulting Party may have (whetherby agreement, operation of law, or other-wise), and, to the extent not prohibited bylaw, the Nondefaulting Party shall have a gen-eral right of setoff with respect to all amountsowed by each Party to the other Party,whether due and payable or not due andpayable (provided that any amount not dueand payable at the time of such setoff shall, ifappropriate, be discounted to present valuein a commercially reasonable manner by theNondefaulting Party). The NondefaultingParty’s rights under this Section 6.8 are subjectto Section 6.7.

Section 7.Force Majeure, Act of State, andIllegality

7.1. Definitions.(a) “Force Majeure Event,” on any day deter-

mined as if such day were a Settlement Dateof an FX Transaction or the Settlement Date ofa Currency Option Transaction (even if it isnot), after giving effect to any applicableprovision, disruption fallback, or remedyspecified in, or pursuant to, the relevantConfirmation, means:

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(i) it is unlawful for (A) the Office throughwhich a Party (which shall be the“Affected Party”) is acting to deliver orreceive a payment of any Currency inrespect of a Currency Obligation orCurrency Option Transaction; or (B) aParty or a Credit Support Provider withrespect to the obligations of such Party(which shall be the “Affected Party”) toperform any absolute or contingentobligation to make payment or delivery,which such Party or Credit SupportProvider has under a Credit SupportDocument relating to such FXTransaction or Currency OptionTransaction, to receive a payment ordelivery under such Credit SupportDocument, or to comply with any othermaterial provision of such CreditSupport Document; or

(ii) by reason of force majeure or act ofstate, (A) the Office through which aParty (which shall be the “AffectedParty”) is acting is prevented from, orhindered, or delayed in deliveringor receiving, or it is impossible orimpracticable to deliver or receive,any Currency in respect of a CurrencyObligation or Currency OptionTransaction, and which event isbeyond the control of such Party andwhich such Party, with reasonablediligence, cannot overcome; or (B) aParty or a Credit Support Provider ofsuch Party (which shall be the“Affected Party”) is prevented fromperforming any absolute orcontingent obligation to makepayment or delivery, which such Partyor Credit Support Provider has underany Credit Support Documentrelating to such FX Transaction orCurrency Option Transaction, from

receiving a payment or delivery undersuch Credit Support Document, orfrom complying with any othermaterial provision of such CreditSupport Document (or would be soprevented if such payment, delivery,or compliance were required on thatday), or it becomes impossible orimpracticable for such Party or CreditSupport Provider so to perform,receive, or comply (or it would beimpossible or impracticable for suchParty or Credit Support Provider so toperform, receive, or comply if suchpayment, delivery, or compliancewere required on that day).

An FX Transaction or Currency OptionTransaction (1) under which performancehas been made unlawful, impossible, orimpracticable, or would be so prevented,hindered, or delayed; or (2) in respect ofwhich the performance of such Party orthe Credit Support Provider of such Partyunder a Credit Support Document is madeunlawful, impossible, or impracticable, or isso prevented, is an “Affected Transaction.”

(b) “Waiting Period” means, in respect of aForce Majeure Event as defined inSection 7.1(a)(i), the first three (3) days aftersuch event occurs that are Business Daysor that, but for such event, would havebeen Business Days, and, in respect of aForce Majeure Event as defined inSection 7.1(a)(ii), the first eight (8) days aftersuch event occurs that are Business Daysor that, but for such event, would havebeen Business Days.

7.2. Liquidation Rights.If a Force Majeure Event occurs and is still ineffect, then (but subject to Section 7.3) either


Party may, by notice to the other Party on any dayor days after the Waiting Period expires, requirethe closeout and liquidation of the CurrencyObligations under any or all of the AffectedTransactions in accordance with the provisionsof Section 6.1 and, for such purposes, theParty unaffected by such Force MajeureEvent shall perform the calculation requiredunder Section 6.1 as if it were the Non-defaulting Party (or, if both Parties are AffectedParties, both Parties shall so calculate in respectof all Affected Transactions, which either Partydetermines to liquidate, and the average of theamounts so determined shall be the relevantamount in respect of each Affected Transaction,except that if a Party fails so to determine anamount, the amount determined by the otherParty shall govern). If a Party elects so to liqui-date less than all Affected Transactions, it mayliquidate additional Affected Transactions on alater day or days if the relevant Force MajeureEvent is still in effect.

7.3. Waiting Period.If the Settlement Date of an FX Transaction or aCurrency Option Transaction, which is anAffected Transaction under Section 7.2, falls dur-ing the Waiting Period of the relevant ForceMajeure Event, then such Settlement Date orSettlement Dates (as applicable) shall bedeferred to the first Business Day (or the first daythat, but for such event, would have been aBusiness Day) after the end of that WaitingPeriod. Compensation for this deferral shall beat then current market rates as determined in acommercially reasonable manner by the calcu-lating Party or Parties under Section 6.

7.4. Notice by Affected Party.If a Force Majeure Event has occurred, anAffected Party shall promptly give noticethereof to the other Party.

7.5. Force Majeure Event andEvent of Default.

Nothing in this Section 7 shall be taken as indi-cating that the Party treated as the DefaultingParty for the purpose of calculations requiredby Section 7.1 has committed any breach ordefault. If an event occurs that would other-wise constitute both a Force Majeure Eventand an Event of Default, that event shall betreated as a Force Majeure Event and shall notconstitute an Event of Default.

7.6. Inability of Head or HomeOffice to Perform Obligationsof Branch.

If (a) a Force Majeure Event occurs and therelevant Office is not the Affected Party’s heador home office, (b) the other Party seeks per-formance of the relevant obligation or com-pliance with the relevant provision by theAffected Party’s head or home office, and(c) the Affected Party’s head or home officefails so to perform or comply due to theoccurrence of an event or circumstance thatwould, if that head or home office were theOffice through which the Affected Partymakes and receives payments and deliverieswith respect to the relevant FX Transaction orCurrency Option Transaction, constitute orgive rise to a Force Majeure Event, and suchfailure would otherwise constitute an Event ofDefault under Section 6.1 with respect to such

95IFXCO TERMS

Party, then, for so long as the relevant event orcircumstance continues to exist with respectto both such Office and the Affected Party’shead or home office, such failure shall notconstitute an Event of Default under Section 6.1.

Section 8.Parties to Rely on Their OwnExpertiseEach Party shall be deemed to represent tothe other Party on the date on which it entersinto an FX Transaction or Currency OptionTransaction that (absent a written agreementbetween the Parties that expressly imposesaffirmative obligations to the contrary for thatFX Transaction or Currency OptionTransaction): (a)(i) it is acting for its ownaccount, and it has made its own independentdecisions to enter into that FX Transaction orCurrency Option Transaction and as towhether that FX Transaction or CurrencyOption Transaction is appropriate or proper forit based upon its own judgment and uponadvice from such advisors as it has deemednecessary; (ii) it is not relying on any communi-cation (written or oral) of the other Party asinvestment advice or as a recommendation toenter into that FX Transaction or CurrencyOption Transaction, it being understood thatinformation and explanations related to theterms and conditions of an FX Transactionor Currency Option Transaction shall not beconsidered investment advice or a recommen-dation to enter into that FX Transaction orCurrency Option Transaction; and (iii) it has notreceived from the other Party any assurance orguarantee as to the expected results of that FXTransaction or Currency Option Transaction;(b) it is capable of evaluating and understand-

ing (on its own behalf or through independentprofessional advice), and understands andaccepts the terms, conditions, and risks of thatFX Transaction or Currency Option Transaction;and (c) the other Party is not acting as a fiduciaryor an advisor for it in respect of that FXTransaction or Currency Option Transaction.

Section 9.Miscellaneous

9.1. Currency Indemnity.The receipt or recovery by either Party (the “firstParty”) of any amount in respect of an obligationof the other Party (the “second Party”) in aCurrency other than that in which such amountwas due, whether pursuant to a judgment ofany court or pursuant to Section 6 or 7, shall dis-charge such obligation only to the extent that,on the first day on which the first Party is openfor business immediately following such receiptor recovery, the first Party shall be able, inaccordance with normal banking practice, topurchase the Currency in which such amountwas due with the Currency received or re-covered. If the amount so purchasable shall beless than the original amount of the Currency inwhich such amount was due, the second Partyshall, as a separate obligation and notwithstand-ing any judgment of any court, indemnify thefirst Party against any loss sustained by it. Thesecond Party shall in any event indemnify thefirst Party against any costs incurred by it in mak-ing any such purchase of the Currency.

9.2. Assignment.Neither Party may assign, transfer, or chargeor purport to assign, transfer, or charge its


rights or obligations under the Agreement toa third party without the prior written con-sent of the other Party and any purportedassignment, transfer, or charge in violation ofthis Section 9.2 shall be void.

9.3. Telephonic Recording.The Parties agree that each may electronicallyrecord all telephonic conversations betweenthem and that any such recordings may besubmitted in evidence to any court or in anyProceedings for the purpose of establishingany matters pertinent to the Agreement.

9.4. Notices.(a) Any notice or other communication in

respect of this Agreement may be given inany manner described below (except thata notice or other communication underSection 5, 6, or 7 may not be given by elec-tronic messaging system or e-mail) to theaddress or number or in accordance withthe electronic messaging system or e-maildetails provided in Part IX of theAdherence Agreement and shall bedeemed effective as indicated: (i) if in writ-ing and delivered in person or by courier,on the date it is delivered; (ii) if sent bytelex, on the date the recipient’s answer-back is received; (iii) if sent by facsimiletransmission, on the date it is received by aresponsible employee of the recipient inlegible form (it being agreed that the bur-den of proving receipt shall be on thesender and shall not be met by a transmis-sion report generated by the sender’sfacsimile machine); (iv) if sent by certifiedor registered mail (airmail, if overseas) orthe equivalent (return receipt requested),on the date it is delivered or its delivery is

attempted; (v) if sent by electronic mes-saging system, on the date it is received; or(vi) if sent by e-mail, on the date it isdelivered; unless the date of that delivery(or attempted delivery) or that receipt, asapplicable, is not a Business Day or thatcommunication is delivered (or attempted)or received, as applicable, after the closeof business on a Business Day, in whichcase that communication shall be deemedgiven and effective on the first followingday that is a Local Banking Day.

(b) Either Party may by notice to the otherchange the address, telex or facsimilenumber, or electronic messaging systemor e-mail details at which notices or othercommunications are to be given to it.

9.5. Termination.Each of the Parties may terminate theAgreement at any time by seven (7) days’ priorwritten notice to the other Party delivered asprescribed in Section 9.4, and terminationshall be effective at the end of such seventhday; provided, however, that any such termi-nation shall not affect any outstandingCurrency Obligations or Currency OptionTransactions, and the provisions of theAgreement shall continue to apply until allthe obligations of each Party to the other underthe Agreement have been fully performed.

9.6. Severability.In the event any one or more of the provisionscontained in the Agreement should be heldinvalid, illegal, or unenforceable in any respectunder the law of any jurisdiction, the validity,legality, and enforceability of the remaining pro-

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visions contained in the Agreement under thelaw of such jurisdiction, and the validity, legality,and enforceability of such and any otherprovisions under the law of any other jurisdic-tion shall not in any way be affected orimpaired thereby. The Parties shall endeavorin good faith negotiations to replace theinvalid, illegal, or unenforceable provisionswith valid provisions the economic effect ofwhich comes as close as possible to that of theinvalid, illegal, or unenforceable provisions.

9.7. No Waiver.No indulgence or concession granted by a Partyand no omission or delay on the part of a Partyin exercising any right, power, or privilege underthe Agreement shall operate as a waiverthereof, nor shall any single or partial exerciseof any such right, power, or privilege precludeany other or further exercise thereof or theexercise of any other right, power, or privilege.

9.8. Time of Essence, Times.Time shall be of the essence in the Agree-ment. Unless otherwise agreed, the timesreferred to in the Agreement with respect toCurrency Option Transactions shall in eachcase refer to the local time of the relevantOffice of the Seller of the relevant CurrencyOption Transaction.

9.9. Headings.Headings in the Agreement are for ease ofreference only.

9.10. Payments Generally.All payments to be made under theAgreement shall be made in same day (orimmediately available) and freely transferablefunds and, unless otherwise specified, shallbe delivered to such office of such bank, andin favor of such account as shall be specifiedby the Party entitled to receive such paymentin Part X of the Adherence Agreement or in anotice given in accordance with Section 9.4.

9.11. Amendments.No amendment, modification, or waiver of theAgreement shall be effective unless in writingexecuted by each of the Parties, provided thatthe Parties may agree in a Confirmation thatcomplies with Section 1.3 to amend theAgreement solely with respect to a Non-Deliverable FX Transaction or a CurrencyOption Transaction that is the subject of theConfirmation; and provided, further, the Partiesmay agree in a Confirmation that complies withSection 1.3 to amend the Agreement solelywith respect to a Deliverable FX Transactionthat is the subject of the Confirmation if eitherthe Confirmation explicitly states that it shallso prevail and has been signed by both Partiesor Confirmations so stating have beenexchanged as provided in Section 1.3.

9.12. Credit Support.A Credit Support Document between theParties may apply to obligations governed bythe Agreement, including but not limited to


any Credit Support Document specified inPart XI of the Adherence Agreement. If theParties have executed a Credit SupportDocument, such Credit Support Documentshall be subject to the terms of the Agreementand is hereby incorporated by reference in theAgreement. In the event of any conflictbetween a Credit Support Document and theAgreement, the Agreement shall prevail,except for any provision in such Credit SupportDocument in respect of governing law.

9.13. Counterparts.The Agreement (and each amendment, mod-ification, and waiver in respect of it) may beexecuted and delivered in counterparts(including by facsimile and by electronicmessaging system), each of which shall bedeemed an original.

Section 10.Law and Jurisdiction

10.1. Governing Law.The Agreement shall be governed by, andconstrued in accordance with, the laws ofthe jurisdiction set forth in Part XII of theAdherence Agreement, without giving effectto conflict of laws principles.

10.2. Consent to Jurisdiction.(a) With respect to any Proceedings, each

Party irrevocably (i) submits to the nonex-clusive jurisdiction of the courts of thejurisdiction set forth in Part XIII of theAdherence Agreement, and (ii) waives anyobjection that it may have at any time tothe laying of venue of any Proceedingsbrought in any such court, waives anyclaim that such Proceedings have been

brought in an inconvenient forum, and fur-ther waives the right to object, withrespect to such Proceedings, that suchcourt does not have jurisdiction over suchParty. Nothing in the Agreement precludeseither Party from bringing Proceedings inany other jurisdiction; nor shall the bring-ing of Proceedings in any one or morejurisdictions preclude the bringing ofProceedings in any other jurisdiction.

(b) Each Party irrevocably appoints the agentfor service of process (if any) specified withrespect to it in Part XIV of the AdherenceAgreement. If for any reason any Party’sprocess agent is unable to act as such,such Party shall promptly notify the otherParty and within thirty (30) days shallappoint a substitute process agentacceptable to the other Party.

10.3. Waiver of Jury Trial.Each Party irrevocably waives any and all rightto trial by jury in any Proceedings.

10.4. Waiver of Immunities.Each Party irrevocably waives, to the fullestextent permitted by applicable law, withrespect to itself and its revenues and assets(irrespective of their use or intended use), allimmunity on the grounds of sovereignty orother similar grounds from (a) suit; (b) jurisdic-tion of any court; (c) relief by way of injunction,order for specific performance or for recoveryof property; (d) attachment of its assets(whether before or after judgment); and (e) exe-cution or enforcement of any judgment towhich it or its revenues or assets might other-wise be entitled in any Proceedings in the courtsof any jurisdiction and irrevocably agrees, to theextent permitted by applicable law, that it shallnot claim any such immunity in any Proceedings.

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Annex 1Definitions

“Adherence Agreement” has the meaning givento it in the preamble to these Terms.

“Affected Party” has the meaning given to it inSection 7.1.

“Affected Transaction” has the meaning givento it in Section 7.1.

“Agreement” has the meaning given to it inSection 1.2.

“Business Day” means for purposes of: (a) anymatter specified in the Definitions, as definedtherein; (b) Section 5(a), a day on which set-tlement systems necessary to accomplish therelevant payment are generally open for busi-ness so that the payment is capable of beingaccomplished in accordance with customarymarket practice, in the place specified in therelevant Confirmation, or if not so specified,in a location as determined in accordancewith customary market practice for the rele-vant delivery; and (c) any other provision ofthe Agreement, a day that is a Local BankingDay for the applicable Offices of both Parties;provided, however, that neither Saturday norSunday shall be considered a Business Day forany purpose.

“Closeout Amount” has the meaning given to itin Section 6.1.

“Closeout Date” means a day on which, pur-suant to the provisions of Section 6.1, theNondefaulting Party closes out Currency

Obligations and/or Currency Option Trans-actions or such closeout occurs automatically.

“Closing Gain,” as to the Nondefaulting Party,means the difference described as such inrelation to a particular Settlement Date underthe provisions of Section 6.1.

“Closing Loss,” as to the Nondefaulting Party,means the difference described as such inrelation to a particular Settlement Date underthe provisions of Section 6.1.

“Credit Support” has the meaning given to it inSection 6.2.

“Credit Support Document,” as to a Party (the“first Party”), means a guaranty, hypothecationagreement, margin or security agreement ordocument, or any other document containingan obligation of a third party (“Credit SupportProvider”) or of the first Party in favor of theother Party supporting any obligations of thefirst Party under the Agreement, and in anyevent includes any document specified assuch in Part XI of the Adherence Agreement.

“Credit Support Provider” has the meaninggiven to it in the definition of Credit SupportDocument.

“Currency” means money denominated in thelawful currency of any country.

“Currency Obligation” means any obligationof a Party to deliver a Currency pursuant to anFX Transaction (including a Non-Deliverable FXTransaction for which the Settlement CurrencyAmount has been fixed), or an exercisedCurrency Option Transaction. For the purposesof Section 6.1 only: (a) the amount of the


Currency Obligation of a Non-Deliverable FXTransaction for which the Settlement CurrencyAmount has not been fixed on or prior to theCloseout Date shall be as determined by theNondefaulting Party in good faith and in a com-mercially reasonable manner; and (b) the term“Currency Obligation” shall not include aCurrency Option Transaction that is to besettled at its In-the-Money Amount.

“Custodian” has the meaning given to it in thedefinition of Insolvency Proceeding.

“Defaulting Party” has the meaning given to itin Section 5.

“Definitions” has the meaning given to it in thepreamble to these Terms.

“Effective Date” means the date specified assuch in the Adherence Agreement, providedthat if no such date is specified it shall be thedate of the Adherence Agreement.

“Event of Default” has the meaning given to itin Section 5.

“Force Majeure Event” has the meaning givento it in Section 7.1.

“Insolvency Proceeding” means (a) a case orproceeding seeking a judgment of or arrange-ment for insolvency, bankruptcy, composition,rehabilitation, reorganization, administration,winding-up, liquidation, or other similar reliefwith respect to the Defaulting Party or itsdebts or assets, or seeking the appointment ofa trustee, receiver, liquidator, conservator,administrator, custodian, or other similar official

(each, a “Custodian”) of the Defaulting Partyor any substantial part of its assets, under anybankruptcy, insolvency, or other similar law orany banking, insurance, or similar law govern-ing the operation of the Defaulting Party; or(b) the Defaulting Party causes or is subject toany event with respect to it that, under theapplicable laws of any jurisdiction, has ananalogous effect to any of the events specifiedin this paragraph.

“LIBOR,” with respect to any Currency anddate, means the average rate at whichdeposits in the Currency for the relevantamount and time period are offered by majorbanks in the London interbank market as of11:00 a.m. London time on such date, or, ifmajor banks do not offer deposits in suchCurrency in the London interbank market onsuch date, the average rate at which depositsin the Currency for the relevant amount andtime period are offered by major banks in therelevant foreign exchange market at such timeon such date as may be determined by theParty making the determination.

“Local Banking Day” means (a) for anyCurrency, a day on which commercial bankseffect deliveries of that Currency in accor-dance with the market practice of the relevantforeign exchange market; and (b) for anyParty, a day in the location of the applicableOffice of such Party on which commercialbanks in that location are not authorized orrequired by law to close.

“Master Agreement” has the meaning given toit in Section 1.2.

101IFXCO TERMS

“Nondefaulting Party” has the meaning givento it in Section 5.

“Office(s),” as to a Party, has the meaning givento it in Section 1.1.

“Parties” means the parties to the Agreementas set forth in the Adherence Agreement,including their successors and permittedassigns (but without prejudice to the applica-tion of Section 5(i)); and the term “Party” shallmean whichever of the Parties is appropriatein the context in which such expression maybe used.

“Proceedings” means any suit, action, or otherproceedings relating to the Agreement, anyFX Transaction, or any Currency OptionTransaction.

“Specified Indebtedness” means any obligation(whether present or future, contingent or other-wise, as principal, or surety, or otherwise)in respect of borrowed money, other than inrespect of deposits received.

“Specified Transaction” means (a) any transac-tion (including an agreement with respect toany such transaction) now existing or here-after entered into between one Party to thisAgreement (or any Credit Support Provider ofsuch Party) and the other Party to thisAgreement (or any Credit Support Provider ofsuch other Party) that is not a Transactionunder this Agreement but (i) that is a rate swaptransaction, swap option, basis swap, forwardrate transaction, commodity swap, commodityoption, equity or equity index swap, equity orequity index option, bond option, interestrate option, foreign exchange transaction, cap

transaction, floor transaction, collar transac-tion, currency swap transaction, cross-currencyrate swap transaction, currency option, creditprotection transaction, credit swap, creditdefault swap, credit default option, totalreturn swap, credit spread transaction, repur-chase transaction, reverse repurchase trans-action, buy/sell-back transaction, securitieslending transaction, weather index transaction,or forward purchase or sale of a security,commodity, or other financial instrument orinterest (including any option with respect toany of these transactions); or (ii) that is a typeof transaction that is similar to any transactionreferred to in clause (i) above that is currently,or in the future becomes, recurrently enteredinto in the financial markets (including termsand conditions incorporated by reference insuch agreement) and which is a forward,swap, future, option, or other derivative onone or more rates, currencies, commodities,equity securities or other equity instruments,debt securities or other debt instruments,economic indices or measures of economicrisk or value, or other benchmarks againstwhich payments or deliveries are to be made;(b) any combination of these transactions;and (c) any other transaction identified as aSpecified Transaction in this Agreement or therelevant Confirmation.

“Spot Date” means the spot delivery day forthe relevant Currency Pair as generally usedby the relevant foreign exchange market.

“Spot Rate” has the meaning given to it in theDefinitions, provided that the “Settlement RateOption” referred to therein shall be deemedto be unspecified and the reference therein to


“Calculation Agent” shall be deemed a refer-ence to the Nondefaulting Party.

“Termination Currency,” as to a Party, means theCurrency of the country in which such Party’shome or head office is located, or if anotherCurrency is specified in the AdherenceAgreement as to a Party, that Currency.

“Threshold Amount” means zero ($0), unlessthe Parties otherwise specify as such for eachParty in Part VI of the Adherence Agreement.

“Waiting Period” has the meaning given to it inSection 7.1.

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Annex 2AU.S. Regulatory Representations

A. The following FDICIA representation shallapply if the Parties have so elected in theAdherence Agreement:

1. Each Party represents and warrants thatit qualifies as a “financial institution”within the meaning of the FederalDeposit Insurance Corporation Improve-ment Act of 1991 (FDICIA) by virtue ofbeing either a:

(a) broker or dealer within themeaning of FDICIA,

(b) depository institution within themeaning of FDICIA,

(c) futures commission merchantwithin the meaning of FDICIA, or

(d) “financial institution” within themeaning of Regulation EE (seebelow).

2. A Party representing that it is a “financialinstitution,” as that term is defined in12 C.F.R. Section 231.3 of Regulation EEissued by the Board of Governors of theFederal Reserve System (“RegulationEE”), represents that:

(a) it is willing to enter into “financialcontracts” as a counterparty onboth sides of one or more“financial markets,” as those termsare used in Section 231.2 ofRegulation EE; and

(b) during the fifteen (15)-month periodimmediately preceding the date it

makes or is deemed to make thisrepresentation, it has had on atleast one (1) day during suchperiod, with counterparties thatare not its affiliates (as defined inSection 231.2(b) of Regulation EE)either:

(i) one or more financial contractsof a total gross notionalprincipal amount of $1 billionoutstanding, or

(ii) total gross mark-to-marketpositions (aggregated acrosscounterparties) of $100 million;and

(c) agrees that it shall notify the otherParty if it no longer meets therequirements for status as a financialinstitution under Regulation EE.

3. If both Parties are financial institutionsin accordance with the above, theParties agree that the Agreement shallbe a netting contract, as defined in12 U.S.C. Section 4402(14), and eachreceipt or payment or deliveryobligation under the Agreement shallbe a covered contractual paymententitlement or covered contractualpayment obligation, respectively, asdefined in FDICIA.

B. The following ERISA representation shallapply if the Parties have so elected in theAdherence Agreement:

Each Party represents and warrants thatit is neither (1) an “employee benefit plan,”as defined in Section 3(3) of the EmployeeRetirement Income Security Act of 1974,


which is subject to Part 4 of Subtitle B ofTitle I of such Act; (2) a “plan” as defined inSection 4975(e)(1) of the Internal RevenueCode of 1986; nor (3) an entity the assets ofwhich are deemed to be assets of any such“employee benefit plan” or “plan” by rea-son of the U.S. Department of Labor’s planasset regulation, 29 C.F.R. Section 2510.3-101.

C. The following CFTC trade option repre-sentation shall apply if the Parties have soelected in the Adherence Agreement:

Each Party represents and warrants thatit is a commercial user of or a merchanthandling the Currencies subject to eachCurrency Option Transaction and wasoffered or entered into each CurrencyOption Transaction solely for purposesrelated to its business as such.

D. The following Commodities Exchange Actrepresentation shall apply if the Partieshave so elected in the AdherenceAgreement:

Each Party represents and warrants that(1) it is an “eligible contract participant”within the meaning of Section 1a(12) of theCommodity Exchange Act, as amended;(2) this Agreement and each Transaction issubject to individual negotiation by suchParty; and (3) neither this Agreement norany Transaction will be executed or tradedon a “trading facility” within the meaning ofSection 1a(33) of the Commodity ExchangeAct, as amended.

E. The following Master Agreement repre-sentation shall apply if the Parties have soelected in the Adherence Agreement:

The Parties intend that the Agreementshall be a “master agreement” and a “masternetting agreement,” as referred to inChapter 1 of the Bankruptcy Code, and a“master agreement,” as referred to inChapter 16 of the Federal DepositInsurance Act, or any successor provisions.

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Annex 2BCanadian RegulatoryRepresentations andLocal Law Provisions

A. The following disclosure provision shallapply if the Parties have so elected in theAdherence Agreement:

Equivalency Clause. For the purpose of dis-closure pursuant to the Interest Act(Canada), the yearly rate of interest towhich any rate of interest payable underthe Agreement that is calculated on anybasis other than a full calendar year isequivalent may be determined by multi-plying such rate by a fraction the numeratorof which is the actual number of days inthe calendar year in which such yearly rateof interest is to be ascertained and thedenominator of which is the number ofdays comprising such other basis.

B. The following representation shall apply ifthe Parties have so elected in theAdherence Agreement:

Qualified Party Representation. This repre-sentation applies to the extent that anysecurities act, rule, decree, or regulationapplies to a Transaction or any act infurtherance of a Transaction. Each Partyrepresents to the other Party that it meetsthe eligibility criteria that would render theTransaction, act, or other Party exemptfrom any registration, offering document,or other requirement to the extent thesecurities act, rule, decree, or regulationsprovide such an exemption. Each Party isdeemed to repeat this representation oneach date on which a Transaction isentered into. Each Party may rely on this


representation from the other Party inmaking this representation.

C. The following acknowledgement shallapply if the Parties have so elected in theAdherence Agreement:

English Language. The Parties heretoacknowledge that it is their express wishthat this Agreement be drawn in theEnglish language only. Les Parties recon-naissent qu’il est de leur volonté que laprésente entente soit rédigée en langueanglaise seulement.

D. The following amendment shall apply ifthe Parties have so elected in theAdherence Agreement:

Section 7.1(a)(ii) shall be amended (1) todelete in the first line, the words “forcemajeure or act of state” and to insert in lieuthereof “any event or circumstance,including without limitation, any natural,technological, political, or governmental(which for greater certainty includes an actof state), or similar event or circumstance”;and (2) in subsection (A) thereof, to insertthe words “or circumstance” after “andwhich event.”

Annex 3Provisions Applicable Whena Party Is Represented bya Third Party Intermediary

A. The following provisions shall apply whena Party is represented by a third party inter-mediary, such as an investment adviser,investment manager, or similar person(an “Intermediary,” the Party representedbeing, for the purpose of this Annex 3, a“Client,” the other Party being the“Counterparty”) and if the Parties have soelected (including through such Inter-mediary) in the Adherence Agreement:

1. The Intermediary shall provide theCounterparty with a list of the Clients.The Intermediary shall, upon request ofthe Counterparty from time to time,provide the Counterparty with theapproximate market value of assetsunder management for each suchClient.

2. The rights and obligations of the Partyunder this Agreement shall accrue toeach Client, unless the context clearlyrequires otherwise. This Agreementshall be deemed a separate agreementbetween the Counterparty and eachsuch Client (provided that theIntermediary shall be liable to theextent that any representation orwarranty made by it as to itself or onbehalf of a Client shall prove to havebeen false or misleading in any materialrespect as at the time it was made orgiven or deemed made or given).

3. The Intermediary hereby representsand warrants to the Counterparty that

107IFXCO TERMS

(a) the Intermediary is conducting itsbusiness in compliance with allapplicable laws and regulations,including applicable anti-money-laundering laws and regulations;(b) each Client has granted theIntermediary, in writing, investmentmanagement discretion (or theIntermediary’s employees areauthorized to act on behalf of suchClient as employees of such Client)with respect to a portfolio of assetshaving an approximate market valueas set forth on such list, including fulldiscretionary authority to enter intoTransactions for such Client’s accountand risk and to enter into theAgreement on such Client’s behalf,and the right to use such Client’s fundsto satisfy obligations incurred by theIntermediary on such Client’s behalfand sell such Client’s securities toraise the funds necessary to satisfysuch obligations; and (c) afterreasonable inquiry into the financialcondition, investment experience,investment objectives of each Client,and other relevant informationconcerning each Client, theIntermediary has determined thateach Client shall be able to meet all ofits financial and contractualcommitments, which may arise fromor with respect to Transactions andthat Transactions are appropriate foreach Client and within such Client’slegal capacity.

B. The Intermediary agrees to indemnify andhold harmless the Counterparty for anybreach of the representations and war-ranties in this Annex.

This is to confirm the agreement of _______________________________(“Party A”)

and __________________________________________________________(“Party B”)

(collectively, the “Parties”), as of [Insert Date], to the IFXCO Master AgreementTerms, published in June 2005 by the Foreign Exchange Committee in associationwith the British Bankers’ Association, the Canadian Foreign Exchange Committee,and the Japanese Bankers Association, as amended as of the date of this agreement(the “Terms”). This agreement constitutes an Adherence Agreement, as referred toin the Terms.

The definitions and provisions contained in the Terms are hereby incorporated intothis Adherence Agreement.

Part I.Scope of the Agreement as to Outstanding TransactionsDate of this Adherence Agreement: ______________________________________________

The Terms shall apply to all FX Transactions outstanding between any two Offices of theParties on the Effective Date unless otherwise specified in this Part I.

The Terms shall apply to all Currency Option Transactions outstanding between anytwo Offices of the Parties on the Effective Date unless otherwise specified in this Part I.

The Effective Date shall be the date of this Adherence Agreement unless otherwisespecified in this Part I.

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IFXCOAdherence Agreement


Part II.OfficesEach office of Party A and Party B shall be an Officeunless otherwise specified in this Part II.

Part III.Settlement NettingThe settlement netting provisions of Section 3.2 ofthe Terms shall not be effective unless otherwisespecified in this Part III.

[If such provisions are effective, the following Officesshall form the relevant branch pairs for the purposesthereof:

Party A: ____________________________________

Party B: ____________________________________

And such provisions shall be effective as of[the Effective Date].]

Part IV.Certain Regulatory Representationsand/or Local Law Provisions[The representations, warranties, and undertakingsin Annex 2A to the Terms shall apply.]

[The representations, warranties, and undertakingsin Annex 2B to the Terms shall apply.]

[The representations, warranties, and undertakingsin Annex 3 to the Terms shall apply.]

Part V.Additional CovenantsThe following covenant(s) shall apply:

Promptly upon execution of the AdherenceAgreement, each Party shall deliver to the otherdocuments certifying (a) the authority of itssignatory, including a resolution of its board ofdirectors or governing body, if applicable; and(b) incumbency and signature.

From time to time, each Party shall deliver financialstatements or other documentation reasonablyrequested by the other Party (unless already inpossession of the requesting Party).

Part VI.Threshold AmountFor purposes of Section 5(j) of the Terms:

Party A’s Threshold Amount is zero ($0) unlessotherwise specified in this Part VI.

Party B’s Threshold Amount is zero ($0) unlessotherwise specified in this Part VI.

Part VII.Additional Events of DefaultThe following provisions, which are checked, shallconstitute additional Events of Default:

❏ (a) the failure by a Party to give adequateassurances of its ability to perform any of itsobligations under the Agreement withintwo (2) Business Days of a written request todo so when the other Party has reasonablegrounds for insecurity.

❏ (b) occurrence of garnishment or provisionalgarnishment against a claim against theNondefaulting Party acquired by theDefaulting Party. The automatic terminationprovision of Section 6.1 [shall][shall not] applyto either Party that is a Defaulting Party inrespect of this Event of Default.

❏ (c) suspension of payment by the DefaultingParty or any Credit Support Provider inaccordance with the Bankruptcy Law or theCorporate Reorganization Law in Japan. Theautomatic termination provision of Section 6.1[shall][shall not] apply to either Party that is aDefaulting Party in respect of this Event ofDefault.

❏ (d) disqualification of the Defaulting Party or anyCredit Support Provider by any relevant billclearing house located in Japan. The automatic

termination provision of Section 6.1[shall][shall not] apply to either Party that is aDefaulting Party in respect of this Event of Default.

Part VIII.Automatic TerminationThe automatic termination provision of Section 6.1of the Terms [shall][shall not] apply to Party A asDefaulting Party in respect of clause (b), (c), or (d)of the definition of Event of Default.

The automatic termination provision of Section 6.1of the Terms [shall][shall not] apply to Party B asDefaulting Party in respect of clause (b), (c), or (d)of the definition of Event of Default.

Part IX.NoticesIf sent to Party A:

Address: ___________________________________

__________________________________________

Telephone number: _________________________

Telex number: _____________________________

Facsimile number: __________________________

Name of individual or department to whomnotices are to be sent: _______________________

If sent to Party B:

Address: ___________________________________

__________________________________________

Telephone number: _________________________

Telex number: _____________________________

Facsimile number: __________________________

Name of individual or department to whomnotices are to be sent: _______________________

Part X.Payment InstructionsWith respect to each Party, as may be set forth insuch Standard Settlement Instructions as may bespecified by such Party, or as may be otherwisespecified by such Party, in a notice given in accor-dance with Section 9.4 of the Terms.

Part XI.Credit SupportFor avoidance of doubt, a Credit SupportDocument shall include any agreement or docu-ment of the type mentioned in the definition ofsuch term whether or not specifically mentioned inthis Part or elsewhere, and a Credit Support Providerincludes any third party of the type mentioned inthe definition of such latter term whether or notspecifically mentioned in this Part or elsewhere.

[In accordance with Section 9.13 of the Terms andwithout limitation of the definition of CreditSupport Document in Annex 1 of the Terms, thefollowing shall be a Credit Support Document:

The 1999 Collateral Annex (the “CollateralAnnex”) as published by the Foreign ExchangeCommittee, the terms of which are herebyincorporated herein, with the following variableshaving the following meanings:

Pledgor: ___________________________________

Secured Party: ______________________________

Date of Collateral Annex:_____________________

Master Agreement: the Master Agreement(the Terms and this Adherence Agreement)

Collateral Percentages of Eligible Collateral:___________________________________________

Transfer of Other Eligible Collateral:___________________________________________

Securities Intermediary: ______________________

Independent Amount: _______________________

111IFXCO ADHERENCE AGREEMENT

Threshold Amount: __________________________

Collateral Annex Events of Default:_____________

Cutoff Time: ________________________________

Minimum Delivery/Return Amounts: ___________

Rounding Convention: _______________________

Substitutions/Use of Collateral: _______________

Section 5.1 of the Collateral Annex[shall][shall not] apply.

Section 5.2 of the Collateral Annex[shall][shall not] apply.

U.S. Dollar Collateral: ________________________

Collateral Management Offices: _______________

Net Exposure: ______________________________

Other Provisions: __________________________ ]

Part XII.Governing LawIn accordance with Section 10.1 of the Terms, theAgreement shall be governed by the laws of:

❏ the State of New York; and provided that theexclusion of conflict of laws principles inSection 10.1 of the Terms shall exclude onlythose principles or rules that would result inthe application of the laws of another jurisdiction.

❏ England and Wales.

❏ Japan.

Part XIII.Consent to JurisdictionIn accordance with Section 10.2 of the Terms,each Party irrevocably submits to the nonexclusivejurisdiction of:

❏ the courts of the State of New York and theUnited States District Court located in theBorough of Manhattan in New York City.

❏ the courts of England.

❏ the Tokyo District Court.

Part XIV.Agent for Service of Process[Not applicable.]

[Party A appoints the following as its agentfor service of process in any Proceedings in[the State of New York][England and Wales][Japan]:_________________________________________.]

[Party B appoints the following as its agentfor service of process in any Proceedings in[the State of New York][England and Wales][Japan]:_________________________________________.]

BY EXECUTING THIS ADHERENCE AGREEMENT,EACH PARTY REPRESENTS AND WARRANTS THATIT HAS RECEIVED A COPY OF, AND UNDER-STANDS AND CONSENTS TO, THE TERMS ANDPROVISIONS OF THE TERMS REFERENCED IN THEHEADING OF THIS ADHERENCE AGREEMENT.1

ACCEPTED AND AGREED:

PARTY A:___________________________________

By ________________________________________

Name:_____________________________________

Title: ______________________________________

PARTY B: ___________________________________

By ________________________________________

Name:_____________________________________

Title: ______________________________________


1Although not required, some parties may prefer to attach and/or execute a copy of the Terms.

DisclaimerThis Guide and the related forms of documentation do not necessarily reflectthe views of the Federal Reserve Bank of New York or any other component of theFederal Reserve System, or of the Foreign Exchange Committee, the FinancialMarkets Lawyers Group, or any of their members. This Guide and such documen-tation do not purport to be legal advice with respect to a particular transaction orsituation. If legal advice or other expert assistance is required, the services of aqualified professional should be obtained.

113


IFXCOGuide to Changes to theFXC Master Agreements


Table of Contents

I. Introduction ..................................................................................................115

II. Changes to the FXC Master Agreements ....................................................117A. Coordination with the 1998 FX and Currency Option Definitions......................117B. Recommendations of the Global Documentation Steering Commitee .........117

1. Cross-Default ................................................................................................1172. Involuntary Bankruptcy Default ...................................................................1183. Adequate Assurances...................................................................................1184. Force Majeure...............................................................................................1185. Notice Provisions..........................................................................................1196. Default Notices.............................................................................................1197. Bankruptcy Events of Default Generally ......................................................1198. Harmonization of Time Frames....................................................................119

C. Miscellaneous Changes....................................................................................1201. Terms............................................................................................................1202. Adherence Agreement................................................................................120

III. Ideas for the Future.......................................................................................121

Appendix A: Suggested Novation Netting Provisions ............................................122

Appendix B: The Architecture of IFXCO .................................................................125

I. IntroductionThe publication of IFXCO by the ForeignExchange Committee (FX Committee)1 andother sponsoring industry groups in the UnitedKingdom, Canada, and Japan is the result of aproject undertaken by the Financial MarketsLawyers Group (FMLG).2 In 2003, the FMLGcommenced a study to determine whether theexisting master agreements publishedby the FX Committee (individually, the Inter-national Foreign Exchange Master Agreement(IFEMA), the International Currency OptionsMarket Master Agreement (ICOM MasterAgreement), and the International ForeignExchange and Options Master Agreement(FEOMA), and collectively, the “FXC MasterAgreements”) should be updated in light ofdevelopments since their last publication in 1997.

One such development occurred in 1999,when in response to several disruptions in theforeign exchange markets (notably in Asia),the FX Committee published new forcemajeure provisions that could be adopted byparties as an amendment or supplement tothe FXC Master Agreements. Anotheroccurred in 2002, when the InternationalSwaps and Derivatives Association, Inc.(ISDA) published a new ISDA MasterAgreement that included extensive revisionsto the 1992 ISDA Master Agreement. Thus in2003, the FMLG undertook a project toupdate the FXC Master Agreements.

At that time, the continued viability ofthe FXC Master Agreements came into

consideration. Since the FXC MasterAgreements were first published, the vastmajority of master agreements involvingforeign exchange and currency optiontransactions have been documented underthe ISDA Master Agreement, a process thatwas accelerated by the joint publication ofthe 1998 FX and Currency Option Definitions byISDA, EMTA, Inc., and the FX Committee (the“1998 Definitions”). However, a surveyrevealed that the FXC Master Agreements, inparticular IFEMA and FEOMA, are still in use,either because they had been executed sometime ago and have not been replaced, orbecause counterparties, such as hedge funds,that intend only to enter into foreignexchange transactions or currency options, orboth, are using the FXC Master Agreementsbecause they prefer a simpler masteragreement for these transactions. Accord-ingly, the decision was made to update theFXC Master Agreements with the objectiveof simplifying them for use by thesecounterparties.

Concurrently, the Global DocumentationSteering Committee (GDSC) issued recom-mendations to improve all types of masteragreements for derivative transactions. TheGDSC considered such improvementsprimarily in response to the Long-Term CapitalManagement (LTCM) insolvency in 1998, inwhich differences among master agreementsfor different products created difficulties formarket participants that desired to terminate,close out, and liquidate transactions with

115IFXCO GUIDE

1The Foreign Exchange Committee is an advisory committee sponsored by, but independent of, the Federal Reserve Bank of New York. TheFX Committee includes representatives of major financial institutions engaged in foreign currency trading in the United States.

2The FMLG is a key legal and policy advisory group for the Foreign Exchange Committee.

LTCM at that time. The GDSC has publisheda number of specific recommendations on itswebsite,3 which were explicitly consideredand adopted, with certain modifications, inthe 2002 ISDA Master Agreement. TheFMLG decided to include the GDSCrecommendations, as adapted by the 2002ISDA Master Agreement, in the update ofthe FXC Master Agreements.

Finally, it was noted that the 1998Definitions had been published after the lastpublication of the FXC Master Agreements in1997. It was decided that the FXC MasterAgreements could be enhanced andshortened by incorporating the Definitions.

The International Foreign Exchange andCurrency Option (IFXCO4) Master Agreementis the result of the work done by the FMLG toachieve these goals. The IFXCO MasterAgreement, or IFXCO, includes: (a) updatedforce majeure provisions, (b) provisions recom-mended by the GDSC, and (c) terminologycoordinated with the 1998 FX and CurrencyOption Definitions. In addition, certain otherchanges (noted below) have been made.The core provisions concerning contractexecution, confirmations, payment netting,and closeout netting, however, are virtuallythe same as those in the other FXC MasterAgreements.

Most notably, the IFXCO MasterAgreement has been published in two parts—the “Terms,” which constitute the core“boilerplate” provisions, and the “AdherenceAgreement,” which takes the place of the

Schedule to the FXC Master Agreements andprovides for the selection of variables thatmust be specifically agreed upon by theparties. The separation of the two documentsis a major step to enhance ease of executionbecause the Adherence Agreement, adocument of five pages (not including thecover page) that incorporates the Terms byreference, can be executed on a stand-alonebasis. The Terms are published on thewebsites of the FX Committee, the FMLG, andthe other sponsoring organizations.

Thus, as market participants becomefamiliar with IFXCO, it is hoped that thesimplicity of the Adherence Agreement willenhance the speed and efficiency of thenegotiation process. The FMLG and the FXCommittee have received opinions fromcounsel in more than thirty jurisdictions to theeffect that this procedure is enforceable. Ofcourse, if parties wish to attach the Terms to anAdherence Agreement, they are free to do so.

This Guide in no way constitutes part of, orshould be interpreted as modifying, anycontractual term contained in the IFXCOMaster Agreement. Nevertheless, althoughIFXCO does, and is intended to, stand on itsown as a legal document, the Guide providesimportant commentary on current marketpractice and IFXCO. The following sections ofthis Guide explain the various changes to theFXC Master Agreements represented inIFXCO. Capitalized terms used in thisSummary have the meanings given to them inIFXCO, unless otherwise provided herein.


3<www.newyorkfed.org/globaldoc>4IFXCO is pronounced “EYE-FEX-COH.”

II. Changes to the FXC MasterAgreements

A. Coordination with the1998 FX and CurrencyOption Definitions

The 1998 Definitions use the terms “FX Transac-tion” and “Currency Option Transaction,”whereas the FXC Master Agreements use “FXTransaction” and “Currency Option.” IFXCOuses the terms of the 1998 Definitions.

The 1998 Definitions use the term“Settlement Date” for both FX Transactionsand Currency Option Transactions, whereasthe FXC Master Agreements use thetraditional term “Value Date” for FX Transac-tions. IFXCO follows the 1998 Definitions inusing the term “Settlement Date” for both.

Note that, in general, any term used in the1998 Definitions that is not otherwise definedin IFXCO has the meaning given to it in the1998 Definitions. Accordingly, the followingterms are no longer separately defined inIFXCO, as they (or their analogs) are alreadydefined in the 1998 Definitions: “AmericanStyle Option,” “Buyer,” “Call,” “Call Currency,”“Confirmation,” “Currency Pair,” “EuropeanStyle Option,” “Exercise Date,” “ExpirationDate,” “Expiration Time,” “In-the-MoneyAmount,” “Notice of Exercise,” “Premium,”“Premium Payment Date,” “Put,” “PutCurrency,” “Seller,” “Spot Price,” and “StrikePrice.” The definition of “Business Day” hasbeen revised to conform to that of the 1998Definitions, although it also includes specialprovisions for two situations that arise underIFXCO (see Annex 1).

Furthermore, numerous provisions of theFXC Master Agreements were deemedunnecessary for IFXCO because their analogsare included in the 1998 Definitions andincorporated by reference in IFXCO. Theseinclude the provisions for payment of thePremium on a Currency Option Transaction,exercise and settlement of Currency OptionTransactions, and settlement of FX Transactions.

B. Recommendations of theGlobal DocumentationSteering Committee

As noted above, a primary objective was toupdate the FXC Master Agreements in light ofthe GDSC recommendations. These changesare outlined below.

1. Cross-DefaultIn a document dated November 29, 2000,the GDSC recommended a specific cross-default provision covering defaults under(a) indebtedness and (b) trading transac-tions. The FXC Master Agreements definethe former to be “indebtedness for bor-rowed money,” so it does not ordinarilyinclude trading transactions, which areusually off-balance-sheet transactions.Thus, if a party to an FXC MasterAgreement defaulted in trading transac-tions with a third party (as opposed to theother party to the Master Agreement),there would be no default under the FXCMaster Agreements. The situation is similarin the 1992 ISDA Master Agreement.

This recommendation was carefullyconsidered in the drafting of the 2002ISDA Master Agreement; after extensivediscussions, it was not adopted. Weighing

117IFXCO GUIDE

against legitimate credit concerns about acounterparty defaulting on trading trans-actions with third parties was the concernthat such a provision might be usedagainst a party unfairly—for example,defaults in trading transactions can occurfor operational or administrative reasonsand might lead to the termination andcloseout of an agreement against thedefaulting party by numerous counter-parties, causing a liquidity crisis for thedefaulter. Given the careful considerationof this issue by the ISDA drafters, it wasdetermined that IFXCO would adopt asimilar approach.

2. Involuntary Bankruptcy DefaultAnother document of the GDSC, alsodated November 29, 2000, recommendedthat the grace period before an involun-tary bankruptcy becomes an Event ofDefault be shortened to five (5) businessdays. The FXC Master Agreements alreadyhave this provision. The 2002 ISDA MasterAgreement shortened its grace periodfor this provision from thirty (30) days tofifteen (15) days, however, because someparticipants were concerned that five (5) daysis not enough time to achieve the dis-missal of a frivolous filing. Accordingly, forthe sake of consistency across master agree-ments, IFXCO has adopted a fifteen (15)-daygrace period for its own involuntarybankruptcy Event of Default.

3. Adequate AssurancesIn a document dated June 12, 2001, theGDSC recommended that master agree-ments provide for an optional adequateassurances Event of Default. The FXCMaster Agreements already have this pro-vision. IFXCO gives the parties the option

of adopting this provision as an additionalEvent of Default in the AdherenceAgreement.

4. Force MajeureAs noted above, a major reason for revisingthe FXC Master Agreements was to updateits force majeure provisions. Since the publi-cation of FEOMA in 1997, the crises in thecurrency markets noted above have led par-ticipants to believe that provisions in themaster agreements at that time might notprovide the best outcome for all parties.

The GDSC recommendation of June 12,2001, states that there should be a uniformdefinition of force majeure and that forcemajeure should not result in a globalcloseout of a party’s transactions followingan event of default. We believe that thisissue arose in response to the fact thatthe 1992 ISDA Master Agreement hadprovisions dealing with illegality but notimpossibility. Impossibility is now coveredin the FXC Master Agreements, the 2002ISDA Master Agreement, and, of course,IFXCO. The FXC Master Agreements havealways specified that a force majeureevent is not the basis for nonperformance,while at the same time recognizing that itis not the fault of either party, restrictingtermination and closeout to transactionsaffected by the force majeure event.

The more pressing need was to updatethe FXC Master Agreements in light of the1999 force majeure provisions publishedby the FX Committee and the subsequentlearning brought about in drafting newforce majeure provisions in the 2002 ISDAMaster Agreement. The GDSC announcedon October 29, 2003, its support of theapproach that ISDA adopted in drafting its2002 Master Agreement.


Developing an improved approach toforce majeure became a question of adopt-ing the proper balance in a grace periodbefore transactions could be closed out. Itwas recognized that a thirty (30)-day graceperiod (which was then market standard)was too long of a grace period and that arequirement to transfer affected transactionsbefore termination was undesirable. At thesame time, it was believed that the graceperiod warranted for events based on ille-gality should differ from the grace periodfor events based on impossibility. For thisreason, Section 7.1 of the IFXCO Termsadopts a three (3)-day grace period for ille-gality and an eight (8)-day grace period forimpossibility, as was done for the 2002 ISDAMaster Agreement. This concept appears inthe definition “Waiting Period” in Section7.1.(b) of the Terms.

Parties should also take note of Section 7.6of the Terms. This provision is similar to aprovision in the 2002 ISDA MasterAgreement that states the circumstancesunder which the head office of a party maybe expected to perform when a branchcannot perform because of a forcemajeure event. This provision should beread together with new Section 1.1(b) ofthe Terms, which specifies that the headoffice of a party is responsible for theobligations of its branch, subject to theexceptions provided in Section 7 relatingto force majeure.

5. Notice ProvisionsThe GDSC document of August 6, 2002,recommended standard notice provisionsdealing with (a) effectiveness given modernforms of communication, (b) specialdefault certifications when the existence

of an event of default depends on givingnotice but notice cannot be given, and(c) changes of address. The notice provisionsin Section 9.4 of the Terms have been draftedto conform to this recommendation.

6. Default NoticesThis GDSC recommendation of January 24,2003, stated that parties should endeavorto adopt standard notices to be sent to acounterparty if that counterparty is adefaulting party. The FMLG and the FXCommittee support this recommenda-tion; however, it is not a part of IFXCOitself. Recommended templates for suchnotices, which can be adapted for usewith the FXC Master Agreements andIFXCO, are published on the GDSC website.

7. Bankruptcy Events of DefaultGenerallyThis GDSC recommendation of August 21,2003, encouraged adoption of a “catchall”provision that covers any form of bank-ruptcy not already covered in theenumeration of bankruptcy/insolvencyevents. The definition of InsolvencyProceeding in Annex 1 of the Terms hasbeen amended through the addition ofclause (b) to include such a provision.

8. Harmonization of Time FramesThe GDSC recommended that the non-defaulting party should have the right todeclare an event of default no later thanone (1) local business day after notice of anynonpayment. The FXC Master Agreementsalready have this provision. Section 5(a) ofthe IFXCO Terms does as well.

119IFXCO GUIDE

C. Miscellaneous Changes

1. TermsGiven the structure of the Terms and theAdherence Agreement, some provisionsfrom the FXC Master Agreements thatwere retained for IFXCO appear in differentpositions. The definitions have beenplaced in Annex 1 at the end of the Terms.With this long list of terms, which aremeaningless out of context, moved to theAnnex, the reader will not be distractedfrom the core purpose of the Terms, whichis to evidence procedures for enteringinto, confirming, and settling FX Transac-tions and Currency Option Transactions,and for closing them out after default.

Similarly, the Events of Default havebeen listed in a section immediatelybefore the provisions dealing with termi-nation and closeout after default, insteadof in the definitions.

A sentence has been added to Section 1.3of the Terms to make it clear that theParties may eliminate any MT-300 or othermessages between them and rely onreports provided by CLS Bank or any elec-tronic trading platform as Confirmations.

Provisions dealing with certain regula-tory issues that may arise under U.S. law(Federal Deposit Insurance CorporationImprovement Act of 1991 (FDICIA) statusof parties, Employee Retirement IncomeSecurity Act of 1974 (ERISA) representa-tions, Commodity Futures TradingCommission (CFTC) representations, andMaster Agreement representations) arepresented in Annex 2A of the Terms ratherthan in the Adherence Agreement. Thispermits the Adherence Agreement, inwhich the parties decide whether these

regulatory provisions do or do not apply,to be shorter. A similar Annex 2B coversCanadian counterparties. If, in the future,regulatory issues surface for other jurisdic-tions, consideration will be given towhether analogous Annexes for thosejurisdictions should be added.

Annex 3 of the Terms is a new provisiondealing with some basic issues that arisewhen transactions are entered intothrough investment advisers or other inter-mediaries. The FXC Master Agreementsdid not have such provisions, and it isbelieved that their addition through theIFXCO Terms will greatly assist counter-parties wishing to enter into masteragreements with parties represented bysuch intermediaries.

2. Adherence AgreementAs noted above, the Adherence Agreementis analogous to the Schedule of the FXCMaster Agreements, which allows parties toagree that the Terms shall apply to them as amaster agreement and to select or vary theprovisions of the Terms. The AdherenceAgreement is much the same as theprevious Schedule. The Adherence Agree-ment contains parts that allow the partiesto specify scope, offices, and whether ornot settlement netting shall apply.

As for other forms of netting, note thatthe “novation” netting provisions of theFXC Master Agreements have been elimi-nated from the Terms because closeoutsettlement netting is sufficient to accom-plish the goals of parties wishing to reducecredit and settlement exposure. However,some market participants continue toreceive requests from counterparties toenter into such arrangements, related to a


desire not only to settle transactionson a net basis, but also to cancel (novate)transactions at the time they enter into anoffsetting transaction. For this reason,Appendix A provides standard language toaccomplish this novation netting, both forFX Transactions and for Currency OptionTransactions. This language, which may beadded to the Adherence Agreement asParts XV and XVI, is the same as that in theFXC Master Agreements, updated to takethe 1998 Definitions into account.

Other parts in the AdherenceAgreement allow the parties to specifywhether the regulatory representationsand local law provisions of Annexes 2A or2B shall apply, as well as any additionalcovenants and (for the purposes of the cross-default Event of Default) the ThresholdAmount. Unlike the FXC Master Agree-ments, however, the Adherence Agreementstipulates that if the parties do not specifya different Threshold Amount, thatamount is deemed to be zero ($0).

As in the case of the Schedules to theFXC Master Agreements, there are parts ofthe Adherence Agreement that allow theparties to specify whether or notAutomatic Termination shall apply and toagree upon details for notices, paymentinstructions, and provisions relating togoverning law and jurisdiction.

In addition, Part XI of the AdherenceAgreement allows the parties to specifyany Credit Support Documents that apply.Unlike the FXC Master Agreements, how-ever, Part XI has provisions allowing theparties to agree (or stipulate) that the termsof the 1999 Collateral Annex publishedby the FX Committee shall apply. Theseprovisions are felt to be an important

improvement because increasingly, trans-actions are collateralized in the effort toreduce credit risk.

Also notable are the provisions of theFXC Master Agreements that have notbeen continued under IFXCO. Theseinclude the novation netting provisionsmentioned above, the provisions for dis-charge and termination of offsettingCurrency Option Transactions, and theprovision relating to nonpayment ofPremiums that allows a party, upon non-payment of a Premium for a CurrencyOption Transaction, to effectively “void”only that transaction without closing outall transactions under the MasterAgreement. It was felt that this last provi-sion is often negotiated out of the FXCMaster Agreements; further, it does notappear in the 2002 ISDA MasterAgreement. Parties may, of course,include this as an additional provision inthe Adherence Agreement.

III. Ideas for the FutureIf anything is clear from the past fifteen yearsin the effort to adopt industry-standard masteragreements, it is that the agreements must besufficiently flexible to adapt to new situationsand learning. As the market learns from courtcases, changes in law, market disruptions,changes in technology, and evolving prac-tices, it becomes desirable from time to timeto adapt master agreements for the changingtimes. We believe that the structure of IFXCOis uniquely positioned to allow for this.

Because IFXCO is published in the form ofTerms, the FX Committee can more easilypublish enhancements, amendments, or

121IFXCO GUIDE

supplements that take market developmentsinto account. Such changes would beprospective in operation, so that existingAdherence Agreements would not beaffected. If parties wished to incorporate achange, they could do so by exchanginga simple amendment to the AdherenceAgreement.

Some of the possible supplements havealready been noted—there may be particularrepresentations or covenants that aredesirable in particular jurisdictions from aregulatory point of view. Alternatively, newtypes of transactions may come to berecognized. A new Annex could be publishedto apply to the dealings in such transactions.

Thought will soon be given to whether aform of standard default notice or an updateto the 1999 Collateral Annex is desirable.

One particular question concerns whatrelationship IFXCO will have to changes to the1998 Definitions. Although there have beenfew, if any, changes to the main body of the1998 Definitions, there have been severalupdates to the rate source definitions inAnnex A to the 1998 Definitions. The Termsprovide that the 1998 Definitions, asamended up to the date of the AdherenceAgreement, shall be incorporated into theTerms. This provision would address changesto Annex A that take place after publication ofthe Terms, but would preclude revisions to the1998 Definitions from automatically governingthe relationship between the parties after thedate they executed the Adherence Agree-ment. This approach is consistent with that

taken to amendments to Annex A, which areapplied as of their date of publication but notretroactively to outstanding trades (unless theparties otherwise agree). It is anticipated that,if the 1998 Definitions are updated in thefuture in a more substantive way, the Termswill be reviewed in light of these changes. Itshould also be noted that Section 9.1 of theTerms allows the parties to adoptamendments to the Terms that would apply toindividual transactions. Accordingly, changesto the 1998 Definitions could be applied toindividual transactions by amending therelevant confirmations. (In the case ofDeliverable FX Transactions that areproduced by straight-through processing, theconfirmation must be signed by both parties.)

Attached as Appendix B is a chartsummarizing the architecture of the IFXCOdocumentation.

Appendix ASuggested Novation NettingProvisions

Part XV.Novation Netting of FX Transactions

(a) By Currency.If the Parties enter into an FX Transactionthrough a pair of Novation Netting Offices(specified below), giving rise to a CurrencyObligation for the same Settlement Dateand in the same Currency as a then-existingCurrency Obligation between the same pairof Novation Netting Offices, then immedi-ately upon entering into such FXTransaction, each such Currency Obligation


shall automatically and without furtheraction be individually canceled and simulta-neously replaced by a new CurrencyObligation for such Settlement Date deter-mined as follows: the amounts of suchCurrency that would otherwise have beendeliverable by each Party on suchSettlement Date shall be aggregated, andthe Party with the larger aggregate amountshall have a new Currency Obligation todeliver to the other Party the amount of suchCurrency by which its aggregate amountexceeds the other Party’s aggregateamount, provided that if the aggregateamounts are equal, no new CurrencyObligation shall arise. This Part XV(a) shallnot affect any other Currency Obligationof a Party to deliver any different Currencyon the same Settlement Date.

Novation Netting Office(s) of Party A:____________________________________

Novation Netting Office(s) of Party B:____________________________________

(b) By Matched Pair.If the Parties enter into an FX Transactionbetween a pair of Matched Pair NovationNetting Offices (specified below) then theprovisions of Part XV(a) shall apply only inrespect of Currency Obligations arising byvirtue of FX Transactions entered intobetween such pair of Matched PairNovation Netting Offices and involving thesame pair of Currencies and the sameSettlement Date.

Matched Pair Novation Netting Officesof Party A:____________________________________

Matched Pair Novation Netting Offices of Party B:____________________________________

(c) Inapplicability of Parts XV(a)and (b).The provisions of Parts XV(a) and (b) shallnot apply if a Closeout Date has occurredor a voluntary or involuntary InsolvencyProceeding or action of the kinddescribed in Section (b), (c), or (d) ofSection 5 of the Terms has occurredwithout being dismissed in relation toeither Party.

(d) Failure to Record.The provisions of Parts XV(a) and (b) shallapply notwithstanding that either Partymay fail to record the new CurrencyObligation in its books.

(e) Cutoff Date and Time.The provisions of Parts XV(a) and (b) aresubject to any cutoff date and cutoff timeagreed upon by the applicable NovationNetting Offices and Matched PairNovation Netting Offices of the Parties.

123IFXCO GUIDE

Part XVI.Discharge and Termination ofCurrency Option Transactions;Netting of Premiums

(a) Discharge and Termination.Any Call or any Put written by a Party shallautomatically be discharged and terminated,in whole or in part, as applicable, against aCall or a Put, respectively, written by theother Party, such discharge and terminationto occur automatically upon the pay-ment in full of the last Premium payablein respect of such Currency OptionTransactions; provided that such dischargeand termination may only occur in respectof Currency Option Transactions:

(i) each being with respect to the samePut Currency and the same CallCurrency;

(ii) each having the same Expiration Dateand Expiration Time;

(iii) each being of the same style, that is,both being American or both beingEuropean;

(iv) each having the same Strike Price;

(v) each being transacted by the samepair of Offices of Buyer and Seller;

(vi) neither of which shall have beenexercised by delivery of a Notice ofExercise; and

(vii) any other fundamental features arethe same (for example, both are“vanilla” or both are “barriers,” bothare “binaries,” and so forth);

and, upon the occurrence of such dis-charge and termination, neither Party shallhave any further obligation to the otherParty in respect of the relevant CurrencyOption Transactions or, as the case maybe, parts thereof so discharged and termi-nated. Such discharge and terminationshall be effective notwithstanding thateither Party may fail to record such dis-charge and termination in its books. In thecase of a partial discharge and termination(that is, where the relevant CurrencyOption Transactions are for differentamounts of the Currency Pair), the remain-ing portion of the Currency OptionTransaction, which is partially dischargedand terminated, shall continue to be aCurrency Option Transaction for all pur-poses of the Agreement, including thisPart XVI(a).

(b) Netting of Option Premiums.If, on any date, Premiums would otherwisebe payable under the Agreement in thesame Currency between the same respec-tive Offices of the Parties, then, on suchdate, each Party’s obligation to makepayment of any such Premium shall beautomatically satisfied and dischargedand, if the aggregate Premium(s) thatwould otherwise have been payable bysuch Office of one Party exceeds theaggregate Premium(s) that would other-wise have been payable by such Office ofthe other Party, replaced by an obligationupon the Party by whom the larger aggregatePremium(s) would have been payable topay the other Party the excess of the largeraggregate Premium(s) over the smalleraggregate Premium(s) and, if the aggregatePremiums are equal, no payment shallbe made.


125IFXCO GUIDE

Confirmation

IFXCOAdherence Agreement

2005 IFXCOMaster Agreement Terms

Annex 1:Definitions

1998 FX andCurrency Option

Definitions

1999Collateral Annex

indicates the basis or foundation for the agreements in the upper tier.

Appendix BThe Architecture of IFXCO

Copies of these opinions are available to FX Committee/FMLG membersupon request.

Australia

Austria

Bahamas

Belgium

Bermuda

British Virgin Islands

Canada

Cayman Islands

Denmark

England

Finland

France

Germany

Hong Kong

Ireland

Japan

Luxembourg

Malaysia

Netherlands

Netherlands Antilles

New Zealand

Norway

Philippines

Portugal

Scotland

Singapore

South Africa

South Korea

Spain

Sweden

Switzerland

Taiwan

Thailand

United States

127


IFXCOList of Opinions ConcludingThat the IFXCO MasterAgreement Is Enforceable