Cleared Derivatives Execution Agreement Definition

In the world of finance, derivatives are a commonly used tool to manage risk. However, the trading of derivatives can be complex and involve a lot of legal jargon. One such legal document is the Cleared Derivatives Execution Agreement (CDEA).

Simply put, a CDEA is a binding agreement between two parties- a buyer and a seller- for the execution of a cleared derivative transaction. This agreement outlines the terms and conditions under which the transaction will take place.

Cleared derivatives transactions are those that go through a central clearinghouse, which acts as an intermediary between the buyer and the seller by taking on the counterparty risk. This means that if one of the parties defaults, the clearinghouse takes on the financial responsibility of fulfilling the trade.

The CDEA serves as a legal document that outlines the key aspects of the transaction, including the rights and obligations of both parties, the details of the trade, and the timelines for execution. Some of the key elements included in a CDEA are:

1. Trade details: This section outlines the specifics of the trade, such as the asset being traded, the notional amount, the trade date, and the settlement date.

2. Termination provisions: This section outlines the circumstances under which the agreement can be terminated, such as if one party breaches their obligations or if there are significant changes in the market conditions.

3. Representations and warranties: This section contains statements made by both parties about their legal capacity to enter into the agreement, their authority to do so, and that they are not aware of any factors that could prevent the transaction from being completed.

4. Indemnification: This is a clause included to protect one party from financial losses that may result from the actions of the other party.

5. Dispute resolution: This section outlines the process for resolving any disputes that may arise between the parties during the course of the transaction.

In conclusion, a Cleared Derivatives Execution Agreement is a critical legal document that outlines the terms and conditions for executing a cleared derivatives transaction. It is essential that both parties understand the contents of the CDEA before signing it to ensure a smooth and successful transaction.