Failure to Pay, DUST and Cross Default under the ISDA

ISDA Anatomy™ →Go uptown {{{2}}} Index: Click ᐅ to expand: ISDA Navigation See ISDA Comparison for a comparison between the 1992 ISDA and the 2002 ISDA. The Varieties of ISDA Experience Subject 2002 (wikitext) 1992 (wikitext) 1987 (wikitext) Preamble Pre Pre Pre Interpretation 1 1 1 Obligns/Payment 2 2 2 Representations 3 3 3 Agreements 4 4 4 EODs & Term Events 5 Events of Default: FTPD • Breach • CSD • Misrep • DUST • Cross Default • Bankruptcy • MWA Termination Events: Illegality • FM • Tax Event • TEUM • CEUM • ATE 5 Events of Default: FTPD • Breach • CSD • Misrep • DUST • Cross Default • Bankruptcy • MWA Termination Events: Illegality • Tax Event • TEUM • CEUM • ATE 5 Events of Default: FTPD • Breach • CSD • Misrep • DUSS • Cross Default • Bankruptcy • MWA Termination Events: Illegality • Tax Event • TEUM • CEUM Early Termination 6 Early Termination: ET right on EOD • ET right on TE • Effect of Designation • Calculations; Payment Date • Payments on ET • Set-off 6 Early Termination: ET right on EOD • ET right on TE • Effect of Designation • Calculations • Payments on ET • Set-off 6 Early Termination: ET right on EOD • ET right on TE • Effect of Designation • Calculations • Payments on ET Transfer 7 7 7 Contractual Currency 8 8 8 Miscellaneous 9 9 9 Offices; Multibranch Parties 10 10 10 Expenses 11 11 11 Notices 12 12 12 Governing Law 13 13 13 Definitions 14 14 14 Schedule Schedule Schedule Schedule Termination Provisions Part 1 Part 1 Part 1 Tax Representations Part 2 Part 2 Part 2 Documents for Delivery Part 3 Part 3 Part 3 Miscellaneous Part 4 Part 4 Part 4 Other Provisions Part 5 Part 5 Part 5 Tell me more Sign up for our newsletter — or just get in touch: for ½ a weekly 🍺 you get to consult JC. Ask about it here.

For those who think it is useful to understand the interaction between Failure to Pay, DUST and Cross Default. Generally, the risks get bucketed into three:

1. That you default ona transaction under this actual ISDA Master Agreement;
2. That you default under any analogous transaction with me under a different master trading agreement;
3. That you default under a transaction with someone else in the world, the implications of that default being so heinous it should entitle me to terminate the risk I have under my transactions with you.

• FTP covers payment under delivery defaults directly under the ISDA Master Agreement. Obviously straightforward. You don't need any special cross-termination rights here.
• DUST covers default under transactions governed by other master trading agreements (and distinct ISDA Master Agreements — unlikely, but not impossible) between the two of us.
• Cross Default covers defaults under “Specified Indebtedness” (unless you’re odd, that just means normal indebtedness, or borrowed money) between the counterparty and any third party, provided the default is so material (by reference to a Threshold) that it casts doubt on the counterparty’s ongoing viability (and hence its ability to perform its obligations to me uinder the ISDA Master Agreement).

Failure to Pay and DUST are meant to be mutually exclusive by reference to governing agreement (FTP is stuff under this specific ISDA Master Agreement right here, DUST being stuff under any other master trading agreement). DUST and Cross Default are meant to be mutually exclusive by reference to contract type (Specified Transactions under master trading agreements tend not to be “funded” and thus are not, by design, contracts of indebtedness, especially in these times of mandatory collateralisation). This does not stop well-meaning but ignorant risk teams expanding Cross-Default to cover obligations that are not in the nature of indebtedness