Undead ISDA: Difference between revisions
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{{a|isda|[[File:William Blake - The Day of Judgment.jpg|450px|thumb|center|Uh-oh: honey — did I check the residual {{isdaprov|Cross Default}} risk on that old [[87 ISDA]]?]]}}The status of every defunct [[ISDA]] master agreement, once all | {{a|isda|[[File:William Blake - The Day of Judgment.jpg|450px|thumb|center|Uh-oh: honey — did I check the residual {{isdaprov|Cross Default}} risk on that old [[87 ISDA]]?]]}}The status of every defunct [[ISDA]] master agreement, once all {{isdaprov|transaction}}s have [[Terminated Transaction - ISDA Provision|terminated]], whether through the exigencies of a stressed [[close-out]], or simply through the [[entropy]] and general lassitude of a modern life in which many erstwhile [[ISDA]] devotees grew bored, or adversely regulated, and gave up on [[swap]]s, letting the last remaining {{isdaprov|transaction}}s to roll off and scamper, free, into the fragrant meadows of oblivion. | ||
For while you can terminate a ''{{isdaprov|Transaction}}'' under an {{isdama}} — and ''all of them'' — none of its printed forms envisages the parties terminating the [[master agreement]] ''itself''.<ref>There are reasons for this, but they are [[tedious]]: If you terminate the whole agreement, not just the {{isdaprov|Transaction}}s under it, then how are all those clever [[close out]] mechanics meant to work?</ref> It has no general [[no-fault termination]] provisions so, unless you and your counterparty can confect one — for that you will need communion wine, garlic, wooden stakes and so on — a discarded ISDA arrangement will just ''lie there'', locked-in, mute, transfixed, plastered to the infinite like some ghostly apparition, frozen at the [[event horizon]] of | For while you can terminate a ''{{isdaprov|Transaction}}'' under an {{isdama}} — and ''all of them at once'', if things really come to that — none of its printed forms envisages the parties terminating the [[master agreement]] ''itself''.<ref>There are reasons for this, but they are [[tedious]]: If you terminate the whole agreement, not just the {{isdaprov|Transaction}}s under it, then how are all those clever [[close out]] mechanics meant to work?</ref> It has no general [[no-fault termination]] provisions so, unless you and your counterparty can confect one — for that you will need communion wine, garlic, wooden stakes and so on — a discarded ISDA arrangement will just ''lie there'', locked-in, mute, transfixed, plastered to the infinite like some ghostly apparition, frozen at the [[event horizon]] of financial probity for ever — surviving, indefinitely, some say even beyond the mortal existence of they whose trading relationship it once described. | ||
This unnerves those of delicate or superstitious mien. For if it is still there, however immobile, can it not cause [[Financial weapons of mass destruction|mass destruction]] through inattention? | |||
You may laugh, but note only this: they who so haughtily wave such | Some would say this is a non-point, as un-alive as the ISDA that presents it. For an [[ISDA]], under which there are no extant {{isdaprov|Transaction}}s, carries no financial obligations. It presents no [[risk]]. It is as safe as a rusty Luger with the firing pin removed. | ||
If no {{isdaprov|Transactions}} remain that one can [[close out]], what earthly concern is it, for either party, if notional non-payment obligations go unfulfilled? What kind of paranoid weirdo would take the point that one’s continuing [[covenant]]s — to [[Documents for Delivery - ISDA Provision|send annual reports within three months of their publication]], for good example — are being broken?<ref>Only a person yet to meet an [[internal audit]]or could ask that question.</ref> And what of those financial ''meta''-obligations? That two-edged {{isdaprov|Cross Default}} clause? ''Could it'' ... ? | |||
You may laugh, but note only this: they who so haughtily wave such trifles away yet still go quiet and dare not speak of the [[Dark Lord of the Swaps]]. | |||
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Latest revision as of 16:15, 28 November 2019
The status of every defunct ISDA master agreement, once all transactions have terminated, whether through the exigencies of a stressed close-out, or simply through the entropy and general lassitude of a modern life in which many erstwhile ISDA devotees grew bored, or adversely regulated, and gave up on swaps, letting the last remaining transactions to roll off and scamper, free, into the fragrant meadows of oblivion.
For while you can terminate a Transaction under an ISDA Master Agreement — and all of them at once, if things really come to that — none of its printed forms envisages the parties terminating the master agreement itself.[1] It has no general no-fault termination provisions so, unless you and your counterparty can confect one — for that you will need communion wine, garlic, wooden stakes and so on — a discarded ISDA arrangement will just lie there, locked-in, mute, transfixed, plastered to the infinite like some ghostly apparition, frozen at the event horizon of financial probity for ever — surviving, indefinitely, some say even beyond the mortal existence of they whose trading relationship it once described.
This unnerves those of delicate or superstitious mien. For if it is still there, however immobile, can it not cause mass destruction through inattention?
Some would say this is a non-point, as un-alive as the ISDA that presents it. For an ISDA, under which there are no extant Transactions, carries no financial obligations. It presents no risk. It is as safe as a rusty Luger with the firing pin removed.
If no Transactions remain that one can close out, what earthly concern is it, for either party, if notional non-payment obligations go unfulfilled? What kind of paranoid weirdo would take the point that one’s continuing covenants — to send annual reports within three months of their publication, for good example — are being broken?[2] And what of those financial meta-obligations? That two-edged Cross Default clause? Could it ... ?
You may laugh, but note only this: they who so haughtily wave such trifles away yet still go quiet and dare not speak of the Dark Lord of the Swaps.
See also
- Early Termination under the ISDA Master Agreement
- No-fault termination
- The Good Man
- The Dark Lord of the Swaps
References
- ↑ There are reasons for this, but they are tedious: If you terminate the whole agreement, not just the Transactions under it, then how are all those clever close out mechanics meant to work?
- ↑ Only a person yet to meet an internal auditor could ask that question.