Template:Isda 1 details

===Assignment and its effect on Netting and Set-off=== Could a right to assign by way of security upset close-out netting such that one should forbid parties making assignments by way of security of their rights under the ISDA Master Agreement, for fear of undermining your carefully organised netting opinions?

Generally: No.

• An assignment by way of security is a preferred claim in the assignor’s insolvency over the realised value of certain rights the assignor holds against its counterparty. It is not a direct transfer of those rights to an assignee: the counterparty is still obliged to the assignor, not the assignee, and any claim the assignee would have against the counterparty would only be by way of subrogation of the assignor’s claim, should the assignor have imploded in the meantime or something.
• “Nemo dat quod non habet”: the unaffected counterparty’s rights cannot be improved (or worsened) by assignment and, it being a single agreement, on termination of the agreement the assignee’s claim is to the {{{{{1}}}|Termination Amount}} determined under the ISDA Master Agreement, which involves terminating all {{{{{1}}}|Transaction}}s and determining the aggregate mark-to-market and applying close-out netting. No one can give what they do not have.

At the point of close-out, the assignee’s right is to any {{{{{1}}}|Termination Amount}} payable to the Counterparty. Therefore any assignment of rights is logically subject to the netting, as opposed to potentially destructive of it.

But: This is only true insofar as your netting agreement does not actively do something crazy, like disapplying netting of receivables which have been subject to an assignment and dividing these amounts off as "excluded termination amounts not subject to netting". I know what you are thinking. "But why on God’s green earth would anyone do that?" This is a question you might pose to the FIA’s crack drafting squad™, who confabulated the FIA’s Professional Client Agreement, which does exactly that. It is not a problem for the ISDA Master Agreement, though.