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ISDA Agreement Arbitration and Litigation

Lax & Neville LLP represents investors in arbitrations and litigations against financial firms where the security or investment product at issue is governed by an ISDA Master Agreement. An ISDA Master Agreement is a master service agreement created by the International Swaps and Derivatives Association (ISDA) in order for institutions and counterparties/customers to enter into complex derivatives transactions, including options, swaps, credit default swaps, forwards and futures. Generally, a master service agreement is a contract where the parties have previously agreed to most of the terms that will govern future transactions. The advantage of a standardized contract already containing most of the previously agreed upon terms, is that it affords financial institutions the ability to quickly draft and negotiate complex deals regarding incredibly sophisticated products, with parties that they have previously done business with. While the ISDA Master Agreement is perhaps the most popular master service agreement, there are other similar agreements.

Under an ISDA Master Agreement, the parties can decide how they want to resolve any potential dispute. Sometimes, the parties choose the speed and privacy of arbitration. At other times, the parties establish a comprehensive pre-filing dispute resolution procedure calling for mutual negotiation and mediation prior to filing a claim in arbitration. When a dispute arises relating to an ISDA Master Agreement, investors have many different avenues for recovery. Sometimes the relationship between the parties will give rise to a fiduciary duty of care or loyalty. In other situations, an investor might be able to pursue unsuitability, fraud or other trade practices claims in a FINRA arbitration.

In recent years, brokerage firms have begun to market and sell these complex derivatives to more traditional retail investors, including high net worth or even ultra high net worth individuals or small family offices who have little understanding and no experience investing in these products. Problems may quickly arise when these unsuitable products are sold to non-institutional investors who do not understand the risks involved in such investments and have little or no understanding of the terms contained in the lengthy ISDA Master Agreement. Generally speaking, negotiating an investment for the first time by using the ISDA Master Agreement is a long and complex process. However, in some instances a financial firm might present an investment using a finalized form of the ISDA Master Agreement. Furthermore, financial firms often treat ISDA Master Agreements as “arm’s length” negotiations, even though their client is completely depending on the advice of their registered representatives. In these cases, the client may unknowingly agree to terms that may be adverse to their interests and legal rights. For instance, an ISDA agreement might hold that controversies between the investor and firm are required to be resolved in court in New York or the United Kingdom, which may be inconsistent with an investor’s right to arbitrate their claim through FINRA arbitration in their home state.

If you believe you have been treated unfairly or illegaly regarding an investment governed by an ISDA Agreement, please contact our attorneys for a free consultation.

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