How Does the Legal Documentation Differ between Standardized and Customized Derivatives?

Standardized derivatives rely on brief, uniform contract specifications set by the exchange. Customized OTC derivatives require extensive, bilateral legal agreements, often using a master agreement like the ISDA Master Agreement, supplemented by a Credit Support Annex (CSA), which details the collateral and netting arrangements.

The documentation is a major cost and time factor for OTC trades.