Template:Capsule insolvency termination: Difference between revisions
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====Termination upon insolvency==== | |||
{{drop|C|redit officers will}} hotly deny this, but when it comes to [[closing out]] a [[master trading agreement]] there are two main triggers: [[failure to pay]] and [[bankruptcy]]/[[insolvency]]. They also tend to be the most lightly negotiated — it’s hard to argue that your counterparty shouldn’t be allowed to pull its trigger if you are [[insolvent]]. | |||
Still, there are some nuances to what counts as insolvency. It may differ for different entity types: [[banks]] and [[insurer]]s, in particular, having special local administrative regimes or [[BRRD|recovery and resolution frameworks]] which ameliorate the hard lines between solvency and oblivion. So expect a little jiggery-pokery around the edges in defining what counts as an “insolvency event”. But it is not contentious stuff; just detail. | |||
Where these suspension rights stop you quickly [[closing out]] and netting your exposures they might mean your netting analysis fails altogether. This gives you real-world, present time problems, since you must hold capital against the gross exposure under the contract. | |||
Latest revision as of 11:19, 12 September 2024
Termination upon insolvency
Credit officers will hotly deny this, but when it comes to closing out a master trading agreement there are two main triggers: failure to pay and bankruptcy/insolvency. They also tend to be the most lightly negotiated — it’s hard to argue that your counterparty shouldn’t be allowed to pull its trigger if you are insolvent.
Still, there are some nuances to what counts as insolvency. It may differ for different entity types: banks and insurers, in particular, having special local administrative regimes or recovery and resolution frameworks which ameliorate the hard lines between solvency and oblivion. So expect a little jiggery-pokery around the edges in defining what counts as an “insolvency event”. But it is not contentious stuff; just detail.
Where these suspension rights stop you quickly closing out and netting your exposures they might mean your netting analysis fails altogether. This gives you real-world, present time problems, since you must hold capital against the gross exposure under the contract.