By Michael Beaton, Derivatives Risk Solutions LLP
Some practitioners consider a long-form confirmation to be a confirmation that sets out, in full, all the terms and provisions applicable to a transaction [footnote 1] (Type 1). Others consider a long-form confirmation to be one which deems an underlying ISDA Master Agreement to exist in circumstances where an actual ISDA Master Agreement has not been executed (Type 2).
Either way, the use of long-form confirmations has a long-established history. Although the extent of their use has declined in recent years as a result of increased focus on risk management, the desire to take advantage of trading opportunities means that the practice of trading ahead of legal documentation is still not extinct. This is particularly the case with respect to shorter dated transactions and certain asset classes, such as FX.
However, this situation may be about to change.