Template:Isda Automatic Early Termination comp
Redlines
- 1987 ⇒ 1992: Redline of the ’92 vs. the ’87: comparison (and in reverse)
- 1992 ⇒ 2002: Redline of the ’02 vs. the ’92: comparison (and in reverse)
- 1987 ⇒ 2002: Redline of the ’92 vs. the ’87: comparison (and in reverse)
Discussion
The ISDA’s {{{{{1}}}|Automatic Early Termination}} provision is triggered — sorry for the passive, but there is no way around it — by certain types of {{{{{1}}}|Bankruptcy}} {{{{{1}}}|Event of Default}}. If one of those events happen, it deems all {{{{{1}}}|Transactions}} under the ISDA Master Agreement to have been immediately terminated. If the event was the institution of formal insolvency proceedings, the instant before the proceedings were filed. Yes, I know: some creative warping of lexophysical spacetime required there.
It first appears as a named term in the 1992 ISDA. 1987 was still early doors in the life of the over-the-counter derivatives market — the first swap was only six years earlier, remember — and the Basel Committee murmurings about the capital risks posed by infinite leverage were only really just starting to take flight. Credit ISDA’s crack drafting squad™ that they even thought about it, but assuming every insolvency regime in the world would jeopardise contractual provisions the moment a formal bankruptcy was declared was probably overkill. Well, it was overkill. Definitely. Yet another reason people should not use a 1987 ISDA
In the 1992 ISDA version ISDA’s crack drafting squad™ narrowed down the scope of the provision in by disapplying limbs (2) (cashflow insolvency) and (7) (contractual sequestration) from the {{{{{1}}}|Bankruptcy}} definition, officially labelled the concept “{{{{{1}}}|Automatic Early Termination}}”, and rendered it as an electable option. Much more sensible. The language of {{{{{1}}}|6(a)}} did not change between the 1992 ISDA and the 2002 ISDA.