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| {{fullanat2|isda|2(c)|1992|2(c)|2002}} | | {{nman|isda|2002|2(c)}} |
| ===Settlement Netting===
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| Note this section refers only to settlement {{tag|netting}} - the settlement of offsetting payments due on any day under the normal operation is the Agreement - and not the more drastic close-out {{tag|netting}} - which is the {{isdaprov|Early Termination}} of all Transactions under Section {{isdaprov|6}} and the summing of positive and negative MTMs to arrive at a settlement amount following the occurrence of an {{isdaprov|Event of Default}} or a {{isdaprov|Termination Event}}.
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| See, for close-out netting:
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| * {{isdaprov|Single Agreement}}
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| * {{isdaprov|Early Termination Amount}}
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| ===Multiple Transaction Payment Netting===
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| "'''{{isdaprov|Multiple Transaction Payment Netting}}'''" is a defined term introduced in the {{2002ma}} in place of the more clunky {{1992isda}} language set out in Section {{isdaprov|2(c)}}.
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| In the {{1992isda}}, to specify that netting across transactions would apply, you must '''disapply''' Section {{isdaprov|2(c)(ii)}}. Counterintuitive, but true (because otherwise netting only applies "in respect of the same {{isdaprov|Transaction}}'''").
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| That is partly why, in the {{2002isda}} they introduced the more intuitive {{isdaprov|Multiple Transaction Payment Netting}} concept. So now you can say "Multiple Transaction Payment Netting does (or does not) apply".
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| Good on them, eh?
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| {{seealso}}
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| *[[Netting]]
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| *{{isdaprov|Transaction}}
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| *{{isdaprov|Confirmation}}
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| *{{isdaprov|Office}}
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| *{{isdaprov|Multiple Transaction Payment Netting}}
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Latest revision as of 16:26, 14 August 2024
2002 ISDA Master Agreement
A Jolly Contrarian owner’s manual™
2(c) in a Nutshell™
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Original text
2(c) Netting of Payments. If on any date amounts would otherwise be payable:―
- (i) in the same currency; and
- (ii) in respect of the same Transaction,
by each party to the other, then, on such date, each party’s obligation to make payment of any such amount will be automatically satisfied and discharged and, if the aggregate amount that would otherwise have been payable by one party exceeds the aggregate amount that would otherwise have been payable by the other party, replaced by an obligation upon the party by which the larger aggregate amount would have been payable to pay to the other party the excess of the larger aggregate amount over the smaller aggregate amount. The parties may elect in respect of two or more Transactions that a net amount and payment obligation will be determined in respect of all amounts payable on the same date in the same currency in respect of those Transactions, regardless of whether such amounts are payable in respect of the same Transaction. The election may be made in the Schedule or any Confirmation by specifying that “ Multiple Transaction Payment Netting” applies to the Transactions identified as being subject to the election (in which case clause 2(c)(ii) above will not apply to such Transactions). If Multiple Transaction Payment Netting is applicable to Transactions, it will apply to those Transactions with effect from the starting date specified in the Schedule or such Confirmation, or, if a starting date is not specified in the Schedule or such Confirmation, the starting date otherwise agreed by the parties in writing. This election may be made separately for different groups of Transactions and will apply separately to each pairing of Offices through which the parties make and receive payments or deliveries.
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Resources and Navigation
Index: Click ᐅ to expand:
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Comparisons
The 2002 ISDA introduces the concept of Multiple Transaction Payment Netting, thereby correcting a curiously backward way of applying settlement netting.
Basics
Section 2(c) is about “settlement” or “payment” netting — that is, the operational settlement of offsetting payments due on any day under the normal operation of the Agreement — and not the more drastic close-out netting, which is the Early Termination of all Transactions under Section 6.
If you want to know more about close-out netting, see Single Agreement and Early Termination Amount.
We wonder what the point of this section is, since settlement netting is a factual operational process for performing existing legal obligations, rather than any kind of variation of the parties’ rights and obligations. If you owe me ten pounds and I owe you ten pounds, and we agree to both keep our tenners, what cause of action arises? What loss is there? We have settled our existing obligations differently.
To be sure, if I pay you your tenner and you don’t pay me mine, that’s a different story — but then there is no settlement netting at all. The only time one would wish to enforce settlement netting it must, ipso facto, have happened, so what do you think you’re going to court to enforce?
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- JC’s “nutshell” summary of the clause
- Background reading and long-form essays
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- Multiple Transaction Payment Netting — what’s that all about
- Transaction and collateral flows
- The curious timing lapse between transaction payments and collateral marks, and the not particularly good reason why they don’t net settle.
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See also
References