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| The controversial protections in master trading agreements are there for one reason: To stop you losing money. They’re “''[[credit mitigant|credit mitigants]]''”:
| | #redirect[[credit risk mitigation]] |
| ====[[Event of default|Events of default]]====
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| *'''Direct [[Failure to pay]]''': If a party [[failure to pay|fails to pay]] or deliver things it owes under the agreement
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| *'''Indirect credit issues''': Things that increase the likelihood that the party will be unable to do so in the future:
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| **'''[[Bankruptcy]]''': The party goes [[insolvent]] (or gets close to it)
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| **'''Credit impairment''': The party’s [[credit rating]]s are prejudiced (via a merger)
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| **'''[[Cross default]]''': The party breaches important obligations owed to other counterparties
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| *'''[[Misrepresentation]]''': Things that tend to undermine the comfort you took as to the party’s creditworthiness at the outset of the arrangement, such as representations and warranties no longer being true.
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| *'''[[Credit support provider]] issues''': similar things happening to the counterparty’s named guarantors or [[credit support provider]]s.
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| These [[events of default]] live in the pre-printed the agreement, and tend not to be negotiated (except perhaps [[cross-default]], and that's a whole different story).
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| ====[[Additional termination events]]====
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| We also throw in customised “[[additional termination event|additional termination events]]” tailored to the idiosyncrasies of each counterparty. For example, for [[hedge fund]]s we may require “key person” events allowing termination if named individuals cease to be associated with the fund; [[NAV trigger]]s granting close-out rights related to significant decreases in the [[net asset value]] of the fund.
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| These customised events tend to be more controversial and more complicated: [[NAV trigger]]s may be set at different thresholds over different periods
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| ====Margin====
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| Master trading agreements also have less invasive means of mitigating
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