The Captain`s Agreement is a document agreed between two parties, which sets standard conditions for all transactions between these parties. Each time a transaction is concluded, the terms of the framework agreement should not be renegotiated and applied automatically. The framework contract allows the parties to calculate their net financial commitment in over-the-counter transactions, i.e. a party calculates the difference between what it owes to a counterparty under a master contract and what the consideration owes under the same agreement. Section 1, point (c), of the 2002 ISDA Masteragrement, provides that the parties strive to limit this liability by including ”declarations of no confidence” in their agreements, so that each does not rely on the other and makes its own independent decisions. While these submissions are helpful, they would not prevent business practices or other measures if a party`s conduct was inconsistent with that presentation. This only applies to the 1992 masteragrement. The 2002 Master Agreement rejected the first and second methods. In practice, the first method was very rarely chosen, as the financial institutions concerned had to declare their gross commitment and not the net commitment under the masteragrement. The 2002 Master Agreement also replaced the distinction between market quotation and loss with a single concept, ”Close-out Amount.” This transaction is intended for each transaction completed and is, on the whole, the profit or loss that would result from the conclusion of an equivalent transaction at the time of the early termination.
The aggregate of close-out and unpaid amounts is called ”notice.” This is the net amount payable from one party to the other for terminated transactions. The framework contract also helps to reduce litigation by providing significant resources that define its contractual terms and explain the intent of the contract, thus preventing litigation from beginning and providing a neutral resource for interpreting standard contractual terms. Finally, the framework agreement provides significant assistance in managing risks and credit for the parties. ”All transactions are concluded on the basis that this master contract and all confirmations form a single agreement between the parties … and the parties would not make transactions otherwise. The master`s agreement is the central document around which the rest of the ISDA documentation structure is cultivated. The pre-printed framework contract is never amended, with the exception of the addition of the names of the parties, but is adapted to the master agreement by the use of the calendar, a document containing options, additions and changes to the framework contract.