Template:Isda Automatic Early Termination comp: Difference between revisions

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{{isdacomparisons|83262|40195|40196}}
{{isdacomparisons|83262|40195|40196}}
The ISDA’s {{{{{1}}}|Automatic Early Termination}} provision triggered by certain types of {{{{{1}}}|Bankruptcy}} {{{{{1}}}|Event of Default}}. If one of those events happen, it [[deem]]s all {{{{{1}}}|Transactions}} under the {{isdama}} to have been immediately terminated. If the event was the institution of formal insolvency proceedings, ''the instant before'' the proceedings were filed. Yes, I know: some creative warping of [[lexophysics|lexophysical]] spacetime required there.  
The ISDA’s {{{{{1}}}|Automatic Early Termination}} provision — colloquially “{{{{{1}}}|AET}}”, but not to be confused with “{{{{{1}}}|ATE}}” or “{{{{{1}}}|ETA}}” — is triggered — sorry for the [[passive]], but there is no way around it — by certain {{{{{1}}}|Bankruptcy}} {{{{{1}}}|Events of Default}}. Not all of them, though. If it is triggered, {{{{{1}}}|AET}} [[deem]]s all {{{{{1}}}|Transactions}} under the {{isdama}} to be — or, in the case of a formal insolvency petition, ''to have just been'' — immediately terminated. In that last case, some creative warping of [[Lexophysics|lexophysical]] spacetime is required, which we will discuss at some length and with no small amount of wistful pedantry, in the premium section.  


It first appears as a named term in the {{1992ma}}. 1987 was still early doors in the life of the over-the-counter derivatives market — the first swap was only six years earlier, remember — and the Basel Committee murmurings about the capital risks posed by infinite leverage were only really just starting to take flight. Credit {{icds}} that they even thought about it, but assuming ''every'' insolvency regime in the world would jeopardise contractual provisions the moment a formal bankruptcy was declared was probably overkill. Well, it ''was'' overkill. Definitely. Yet another reason people should not use a {{1987ma}}
{{{{{1}}}|Automatic Early Termination}} first appeared as a ''named'' term in the {{1992ma}}. It did feature, uncredited, in the {{1987ma}}, though in this larval stage it was a blunt instrument indeed: it was mandatory and applied against every party in the case of ''any'' Bankruptcy event, regardless of the risk that party’s insolvency regime would jeopardise the {{isdama}}’s carefully machined close-out and netting mechanics. This was unquestionably overkill, and yet another reason to steer clear of the {{1987ma}}.


In the {{1992ma}} version {{icds}} narrowed down the scope of the provision in by disapplying limbs (2) ([[cashflow insolvency]]) and (7) (contractual sequestration) from the {{{{{1}}}|Bankruptcy}} definition, officially labelled the concept “{{{{{1}}}|Automatic Early Termination}}”, and rendered it as an electable option. Much more sensible. The language of {{{{{1}}}|6(a)}} did not change between the {{1992ma}} and the {{2002ma}}.
By the {{1992ma}}, the [[’squad]] had made some key adjustments:
{{gb|They made it an option you could elect in the Schedule, and typically only would elect against a counterparty in one of the few jurisdictions where the [[netting opinion]] required it.<li>
They narrowed down its scope, by excluding limbs (2) ([[cashflow insolvency]]) and (7) (contractual sequestration) of the {{{{{1}}}|Bankruptcy}} definition from its ambit.<li>
They also officially labelled it “{{{{{1}}}|Automatic Early Termination}}”.}}
 
Thereafter they did not change the language of {{{{{1}}}|6(a)}} between the {{1992ma}} and the {{2002ma}}.

Latest revision as of 21:53, 10 September 2024

Redlines

Discussion

The ISDA’s {{{{{1}}}|Automatic Early Termination}} provision — colloquially “{{{{{1}}}|AET}}”, but not to be confused with “{{{{{1}}}|ATE}}” or “{{{{{1}}}|ETA}}” — is triggered — sorry for the passive, but there is no way around it — by certain {{{{{1}}}|Bankruptcy}} {{{{{1}}}|Events of Default}}. Not all of them, though. If it is triggered, {{{{{1}}}|AET}} deems all {{{{{1}}}|Transactions}} under the ISDA Master Agreement to be — or, in the case of a formal insolvency petition, to have just been — immediately terminated. In that last case, some creative warping of lexophysical spacetime is required, which we will discuss at some length and with no small amount of wistful pedantry, in the premium section.

{{{{{1}}}|Automatic Early Termination}} first appeared as a named term in the 1992 ISDA. It did feature, uncredited, in the 1987 ISDA, though in this larval stage it was a blunt instrument indeed: it was mandatory and applied against every party in the case of any Bankruptcy event, regardless of the risk that party’s insolvency regime would jeopardise the ISDA Master Agreement’s carefully machined close-out and netting mechanics. This was unquestionably overkill, and yet another reason to steer clear of the 1987 ISDA.

By the 1992 ISDA, the ’squad had made some key adjustments:

  • They made it an option you could elect in the Schedule, and typically only would elect against a counterparty in one of the few jurisdictions where the netting opinion required it.
  • They narrowed down its scope, by excluding limbs (2) (cashflow insolvency) and (7) (contractual sequestration) of the {{{{{1}}}|Bankruptcy}} definition from its ambit.
  • They also officially labelled it “{{{{{1}}}|Automatic Early Termination}}”.

Thereafter they did not change the language of {{{{{1}}}|6(a)}} between the 1992 ISDA and the 2002 ISDA.

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