ISDA publishes close-out amount protocol

By Jennifer Chiou

New York, Feb. 27 - The International Swaps and Derivatives Association, Inc. announced the launch of the 2009 close-out amount protocol, which permits parties to agree upfront that in the event of a counterparty default, they will use close-out amount valuation methodology to value trades.

Close-out amount valuation, which was introduced in the 2002 ISDA master agreement, differs from the market quotation approach in that it allows participants more flexibility in valuation where market quotations may be difficult to obtain, ISDA said.

"The protocol permits parties to value trades in the way that is most appropriate, which greatly enhances smooth functioning of the market in testing circumstances," Robert Pickel, executive director and chief executive officer, said in a news release.

The protocol is open to ISDA members and non-members alike, the release said, adding that the close-out amount protocol is a so-called evergreen protocol and will remain open for adherence indefinitely.

The text of the protocol and form of adherence letter are available at www.isda.org.

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