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| {{isda 2(a)(iii) gen}} | | {{isda 2(a)(iii) gen}} |
| {{isda 2(a)(iii) detail}} | | {{isda 2(a)(iii) detail}} |
| ====Non-payment delivery defaults====
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| Say you’re a corporate in the habit of buying [[OTC]] [[call]]s or [[put]]s from your broker under the ISDA framework. This is all quite ordinary, unglamorous prudent treasury hedging activity. The basic structure, as for any option, is:
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| {{Quote|''Customer pays broker premium, day one; if the option is [[in-the-money]] on the exercise date, broker pays customer market price minus strike price''.}}
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| That is, after the {{isdaprov|Trade Date}}, the customer never has to pay anything further: it just has what ''should be'' an unconditional right to be paid if it {{Strike|wins its bet|is in-the-money on the Exercise Date}}.
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| Now: imagine you are such a corporate, having executed and settled premium on such a trade, your bet turns out to be wildly successful but, before you can exercise it, you suffers an independent {{isdaprov|Event of Default}}. Some of the ISDA EODs are, as we rehearse elsewhere, rather nebulous or indeterminate: {{isdaprov|Cross Default}}, {{isdaprov|Misrepresentation}} and {{isdaprov|Bankruptcy}} in particular. And some are trivial: ''any'' {{isdaprov|Breach of Agreement}} is, if uncured after 30 days, an {{isdaprov|Event of Default}} and therefore, ''from the instant it is committed'' a [[Potential Event of Default - ISDA Provision|''Potential'' Event of Default]] in that it is contingent only on the passage of time.
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| ===Why the regulators don’t like Section {{isdaprov|2(a)(iii)}}=== | | ===Why the regulators don’t like Section {{isdaprov|2(a)(iii)}}=== |