Calculation Agency Agreement

April 8, 2021

A computational agent is a natural or legal person responsible for determining the value of a derivative. A derivative is a monetary interest rate instrument that deducts its value from an underlying or benchmark. A computational agent calculates the value of a derivative and the amount owed by each party. The computational agent can also determine the price of a structured product and act as guarantor and issuer. When the counterparty in a derivatives transaction is a broker-dealer, it often acts as a computational agent. Spoiler: Naming each part as a co-calculation agent won`t work. It is likely that an average investor will never interact directly with a computational agent, as most derivatives available to retail customers are standardized and are linked to liquid and largely transparent markets. In these cases, pricing mainly involves considering the market price accessible to the public. As the derivatives involved enter thinner markets or the nature of the transaction is adjusted above market standards, the calculation agent becomes more important. However, the increased emphasis placed on determining the means of calculation can lead to a conflict of interest if the means of calculation is also the seller. But whoever is the calculating agent and how much discretion he has to determine the calculation without the entertaining protest of the other party is an issue that can occupy a derivative lawyer for days. As the name suggests, a computational agent is a person responsible for calculating things, usually under a master commercial contract, such as an ISDA master contract, a global master repurchase agreement, a 2010 GMSLA or a 1995 English LAW CSA or any other credit support document.

It will usually be one of the parties to the master agreement, and usually [1] the broker of the two traders, if there is only one. . B Companies that are supposed to receive variable or variable interest payments from a security may want fixed payments instead. You could exchange variable cash flows – via a swap – to a company that wants variable interest payments but has fixed-rate cash flows. A swap is an exchange of cash flow from one entity or counterparty to another. The calculator would take over the payments and prices of cash flow as well as any necessary changes to the reference company or the debt issuer. The computational agent is also important for transactions that are billed. Companies may be mutually indebted for cash flow in a transaction. If a consideration owed more money to another consideration, the calculation officer would determine the net difference due by the first consideration. In other words, instead of the two counterparties making payments to each other, the consideration that is more indebted would pay the net difference with the calculating person, which facilitates the calculation, payment and settlement date.

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