From The Jolly Contrarian
Jump to navigation
Jump to search
|
|
| Line 1: |
Line 1: |
| ===[[Assignment]] and its effect on [[netting]] and [[set-off]]===
| |
| Could a right to [[assign by way of security]] upset [[close-out netting]] such that one should forbid parties making [[assignments by way of security]] of their rights under the {{isdama}}, for fear of undermining your carefully organised [[netting opinion]]s?
| |
|
| |
|
| '''Generally''': ''No''.
| |
| *An [[assignment by way of security]] is a preferred claim in the assignor’s [[insolvency]] over the realised value of certain rights the assignor holds against its counterparty. It is not a direct transfer of those rights to an assignee: the counterparty is still obliged to the assignor, not the assignee, and any claim the assignee would have against the counterparty would only be by way of [[subrogation]] of the assignor’s claim, should the assignor have imploded in the meantime or something.
| |
| *“''[[Nemo dat quod non habet]]''”:<ref>“A chap cannot give away what he doesn’t own in the first place.”</ref> the unaffected counterparty’s rights cannot be improved (or worsened) by assignment and, it being a [[single agreement]], on termination of the agreement the assignee’s claim is to the {{{{{1}}}|Termination Amount}} determined under the {{isdama}}, which involves terminating all {{{{{1}}}|Transaction}}s and determining the aggregate mark-to-market and applying [[close-out netting]]. No one can give what they do not have.<ref>Except under [[New York law]] — isn’t that right, [[rehypothecation]] freaks?</ref>
| |
|
| |
| At the point of close-out, the assignee’s right is to any {{{{{1}}}|Termination Amount}} payable to the Counterparty. Therefore any assignment of rights is logically ''subject'' to the netting, as opposed to potentially ''destructive'' of it.
| |
|
| |
| '''But''': This is only true insofar as your netting agreement does not actively do something crazy, like ''disapplying'' netting of receivables which have been subject to an assignment and dividing these amounts off as “excluded termination amounts not subject to netting”. I know what you are thinking. “But why on God’s green earth would anyone do that?” This is a question you might pose to the {{fiacds}}, who confabulated the [[FIA]]’s [[Professional Client Agreement]], which does ''exactly'' that.
| |
|
| |
| Happily, {{icds}} was never quite so cavalier with the {{isdama}}, though.
| |
Latest revision as of 08:28, 2 July 2023