KARACHI, Sept 23: In order to facilitate derivatives transactions of ADDs/NMIs, the State Bank it has been decided to allow use of Long-form Confirmation in place of the ISDA Agreement for certain derivative transactions.

Consequently, the existing Regulation No 33 of Derivatives Business Regulations (FDBR) is replaced by the following with immediate effect:

No derivatives transaction will be executed by ADDs/NMIs unless the International Swaps and Derivatives Association (ISDA) Agreement has been exchanged with the other entity.

However, for FX options, the Long-form Confirmation instead of the ISDA master agreement can be used provided that: a) the tenor of FX option is up to one year; b) the notional principal of the FX option is up to $2 million or equivalent; and c) the aggregated notional principal of all derivative transactions, including IRSs and FRAs, executed with other entity by ADD/NMI during immediate last 12 months is up to $20 million or equivalent.

As soon as aggregated notional principal exceeds limit of $20 million, the ADD/NMI should enter into the ISDA master agreement with other entity before entering into the transaction which results in such excess. For calculating aggregated notional principal, gross amount of all derivative transactions entered into with the bank whether matured or outstanding should be used.

Other instructions on the subject shall, however, remain unchanged, a State Bank circular said on Friday.—PPI