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===[[Guarantees]] and the {{isdama}}: why | ===[[Guarantees]] and the {{isdama}}: why [[Transaction-specific guarantee]]s don’t work=== | ||
Should a client request a {{ | Should a client request a {{{{{1}}}|transaction}}-specific parental {{{{{1}}}|guarantee}} (or [[letter of credit]]) for a {{{{{1}}}|Transaction}} under an {{isdama}} instead of the usual [[all obligations guarantee|“all obligations” guarantee]] of all the counterparty’s obligations under the {{isdama}}, hit the alarm button. | ||
You should ''never'' agree to the {{ | You should ''never'' agree to the {{{{{1}}}|guarantee}} of individual {{{{{1}}}|Transaction}}s (nor accept a [[letter of credit]] with respect to individual {{{{{1}}}|Transactions}}) under an {{isdama}}. If you do, because of the way {{isdama}}s are closed out under Section {{{{{1}}}|6(e)}} — or rather, ''aren’t'' closed out, you might find that just when you want your guarantee to pay, the {{{{{1}}}|Transaction}} it is guaranteeing isn’t there anymore: | ||
On a close-out, each {{ | On a close-out, each {{{{{1}}}|Transaction}} is terminated, the individual close-out amounts are determined, they’re aggregated up to a single net sum (i.e. negative exposures are netted off against positive ones) and a single {{{{{1}}}|Close Out Amount}} is payable with respect to ''all terminated {{{{{1}}}|Transactions}}'' under {{{{{1}}}|6(e)}} ({{{{{1}}}|Payments on Early Termination}}) of the {{isdama}}.<ref>The {{isdama}} itself is never actually terminated, but carries impotently on in undead twilight, roaming the badlands like [[Nosferatu]] or the [[Flying Dutchman]], unloved, unredeemed, until the [[end of days]].</ref> | ||
That is to say, payments following termination of a Transaction are | That is to say, payments following termination of a {{{{{1}}}|Transaction}} are ''not'' payable under the {{{{{1}}}|Transaction}} at all - they are payable under the {{isdama}} itself. Therefore, if the [[guarantee]] relates to the single {{{{{1}}}|Transaction}}, at the point you wish to rely on it (i.e., upon the party’s default), it will have gone, with no payment required. Vanished, [[Tannhäuser Gate|like tears in the rain]]. <br> | ||