Template:Isda 6(e)(i) summ: Difference between revisions

From The Jolly Contrarian
Jump to navigation Jump to search
No edit summary
No edit summary
 
(4 intermediate revisions by the same user not shown)
Line 1: Line 1:
====''First'' terminate {{{{{1}}}|Transaction}}s...====
{{isda 6(e)(i) summ {{{1}}}|{{{1}}}}}
The effect of Section {{{{{1}}}|6(e)(i)}} is that in closing out an {{isdama}}, first you must terminate all {{{{{1}}}|Transaction}}s to arrive at a {{{{{1}}}|Close-out Amount}} for each one.
 
The {{{{{1}}}|Close-out Amount}} is the replacement cost for the {{{{{1}}}|Transaction}}, assuming all payments up to the {{{{{1}}}|Early Termination Date}} have been made — but in a [[closeout]] scenario, of course, [[Q.E.D.]] some of those will ''not'' have been made — being the reason you need to close out.
 
Hence the converse concept of “{{{{{1}}}|Unpaid Amount}}s”, being amounts that ''should'' have been paid or delivered under the {{{{{1}}}|Transaction}} on or before the termination date, but weren’t (hence, we presume, why good sir is closing out the {{isdama}} in the first place).
 
So once you have your theoretical replacement cost for each Transaction, you then have to tot up all the {{{{{1}}}|Unpaid Amount}}s that had fallen due but had not been paid under those {{{{{1}}}|Transaction}}s at the time the {{{{{1}}}|Transaction}}s terminated. These include, obviously, failures by the {{{{{1}}}|Defaulting Party}}, but also amounts the ''{{{{{1}}}|Non-defaulting Party}}'' didn’t pay when it relied on the [[flawed asset]] provision of Section {{{{{1}}}|2(a)(iii)}} to withhold amounts it would otherwise have been due to pay under the Transaction after the default but before it was terminated.<ref>There is a technical exception here for Parties under a {{1992ma}} under which the {{isda92prov|First Method}} applies. But since the {{isda92prov|First Method}} is insane and no-one in their right mind would ever have it in a live contract, we mention it only for completeness.</ref>
 
====...''then'' calculate net {{{{{1}}}|Early Termination Amount}}====
The close out itself happens under Section {{{{{1}}}|6(e)}} of the {{isdama}} and the recourse is to a net sum. Netting does ''not'' happen under the {{{{{1}}}|Transactions}} — on the theory of the game there are no outstanding Transactions at the point of netting; just payables.
 
Therefore, if your [[credit support]] (particularly [[guarantee]]s or [[LC|letters of credit]]) explicitly reference amounts due under specific {{{{{1}}}|Transaction}}s, you may lose any credit support at precisely the point you need it.
 
Which would be a bummer. Further commentary on the [[Guarantee]] page.

Latest revision as of 19:28, 24 January 2024

{{isda 6(e)(i) summ {{{1}}}|{{{1}}}}}

Retrieved from "https://jollycontrarian.com/index.php?title=Template:Isda_6(e)(i)_summ&oldid=83190"