Second Method - ISDA Provision: Difference between revisions

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The ''' Second Method''' is a method of determining the {{isdaprov|Termination Payment}}s due upon close out of an {{isdama}}. It requires a payment to be made equal to the net value of the terminated transactions, even if this means a payment ''to'' the {{isdaprov|Defaulting Party}}.  
{{fullanat|isda|Second Method|2002}}
The ''' Second Method''' is a method of determining the {{isdaprov|Early Termination Payment}} due upon close out of an {{1992ma}}. It requires a payment to be made equal to the net value of the terminated transactions, even if this means a payment ''to'' the {{isdaprov|Defaulting Party}}.  
In case of a termination event under the {{isdama}} it is good to have your payment and calculation methods well-defined. The section {{isdaprov|Payments on Early Termination}} ({{isdama}} Section {{isdaprov|6(e)}} and Schedule 1(f)) covers this.  
In case of a termination event under the {{isdama}} it is good to have your payment and calculation methods well-defined. The section {{isdaprov|Payments on Early Termination}} ({{isdama}} Section {{isdaprov|6(e)}} and Schedule 1(f)) covers this.  


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===See also===
===See also===
*{{isdaprov|General Conditions}} - the ominous subject of Section {{isdaprov|2(a)(iii)}} and the [[Metavante]] case.
*{{isdaprov|General Conditions}} - the ominous subject of Section {{isdaprov|2(a)(iii)}} and the [[Metavante]] case.
 
*{{isdaprov|Close-out Amount}} - the {{2002ma}} equivalent.
{{isdaanatomy}}

Revision as of 19:01, 20 March 2018

ISDA Anatomy™

2002 ISDA
Template:ISDA Master Agreement 2002 Second Method
(view template)

Index: Click to expand: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: FTPDBreachCSDMisrepDUSTCross DefaultBankruptcyMWA Termination Events: IllegalityFMTax EventTEUMCEUMATE 5 Events of Default: FTPDBreachCSDMisrepDUSTCross DefaultBankruptcyMWA Termination Events: IllegalityTax EventTEUMCEUMATE 5 Events of Default: FTPDBreachCSDMisrepDUSSCross DefaultBankruptcyMWA Termination Events: IllegalityTax EventTEUMCEUM
Early Termination 6 Early Termination: ET right on EODET right on TEEffect of DesignationCalculations; Payment DatePayments on ETSet-off 6 Early Termination: ET right on EODET right on TEEffect of DesignationCalculationsPayments on ETSet-off 6 Early Termination: ET right on EODET right on TEEffect of DesignationCalculationsPayments 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
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The Second Method is a method of determining the Early Termination Payment due upon close out of an 1992 ISDA. It requires a payment to be made equal to the net value of the terminated transactions, even if this means a payment to the Defaulting Party. In case of a termination event under the ISDA Master Agreement it is good to have your payment and calculation methods well-defined. The section Payments on Early Termination (ISDA Master Agreement Section 6(e) and Schedule 1(f)) covers this.

Comparison with the First Method

Not generally used, under the First Method, a payment is only ever made by the Defaulting Party to the Non-defaulting Party. Which is a bit rubbish, and plays havoc with capital adequacy calculations. The First Method is thus a back door to withhold payments due under the ISDA Master Agreement and set those off with other (possible) defaulted payments and is therefore undesirable.

See also