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===[[Assignment]] and its effect on {{tag|Netting}} and {{tag|Set-off}}===
===[[Assignment]] and its effect on [[Netting]] and {{tag|Set-off}}===
Could a right to [[assign by way of security]] upset [[close-out netting]] such that one should forbid parties making [[assignments by way of security]] of their rights under a [[master netting agreement]] (such as an {{isdama}} or a {{gmsla}}), for fear of undermining your carefully organised netting opinions?
Could a right to [[assign by way of security]] upset [[close-out netting]] such that one should forbid parties making [[assignments by way of security]] of their rights under a [[master netting agreement]] (such as an {{isdama}} or a {{gmsla}}), for fear of undermining your carefully organised netting opinions?


'''Generally''': ''No''.
'''Generally''': ''No''.
*An [[assignment by way of security]] is a preferred claim in the assignor’s {{tag|insolvency}} over the realised value of certain rights the assignor holds against its counterparty. It is not a direct transfer of those rights to an assignee: the counterparty is still obliged to the assignor, not the assignee, and any claim the assignee would have against the counterparty would only be by way of [[subrogation]] of the assignor’s claim, should the assignor have imploded in the meantime or something.
*An [[assignment by way of security]] is a preferred claim in the assignor’s [[insolvency]] over the realised value of certain rights the assignor holds against its counterparty. It is not a direct transfer of those rights to an assignee: the counterparty is still obliged to the assignor, not the assignee, and any claim the assignee would have against the counterparty would only be by way of [[subrogation]] of the assignor’s claim, should the assignor have imploded in the meantime or something.
*“''[[Nemo dat quod non habet]]''”:<ref>“A chap cannot give away what he doesn't own in the first place.” Of course, try telling that to a [[prime brokerage]] lawyer, or a counterparty to a {{nycsa}}.</ref> the unaffected counterparty’s rights cannot be improved (or worsened) by assignment and, it being a [[single agreement]], on termination of the agreement the assignee’s claim is to the termination amount determined under the Agreement, which involves terminating all transactions and determining the aggregate mark-to-market and applying [[close-out netting]]. No one can give what they do not have.<ref>Except under [[New York law]] — isn't that right, [[rehypothecation]] freaks?</ref>
*“''[[Nemo dat quod non habet]]''”:<ref>“A chap cannot give away what he doesn’t own in the first place.” Of course, try telling that to a [[prime brokerage]] lawyer, or a counterparty to a {{nycsa}}.</ref> the unaffected counterparty’s rights cannot be improved (or worsened) by assignment and, it being a [[single agreement]], on termination of the agreement the assignee’s claim is to the termination amount determined under the Agreement, which involves terminating all transactions and determining the aggregate mark-to-market and applying [[close-out netting]]. No one can give what they do not have.<ref>Except under [[New York law]] — isn’t that right, [[rehypothecation]] freaks?</ref>
*The assignee can be in no better position than the assignor and this takes subject to any [[set-off]]. The conduct of the debtor vis a vis the assignee is irrelevant, unless it gives rise to an estoppel.  See {{casenote|Bibby Factors Northwest Ltd|HFD Ltd}} (paragraphs 38 and 48).<ref>{{cite|Bibby Factors Northwest Ltd|HFD Ltd|2015|EWCACiv|1908}}</ref>
   
   
At the point of closeout, the assignee’s right is to any termination payment payable to the Counterparty. Therefore any assignment of rights is logically ''subject'' to the netting, as opposed to potentially ''destructive'' of it.
At the point of closeout, the assignee’s right is to any termination payment payable to the Counterparty. Therefore any assignment of rights is logically ''subject'' to the netting, as opposed to potentially ''destructive'' of it.
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'''But''': This is only true insofar as your netting agreement does not actively do something crazy, like ''disapplying'' netting of receivables which have been subject to an assignment and dividing these amounts off as "excluded termination amounts not subject to netting".  
'''But''': This is only true insofar as your netting agreement does not actively do something crazy, like ''disapplying'' netting of receivables which have been subject to an assignment and dividing these amounts off as "excluded termination amounts not subject to netting".  


I know what you are thinking. "But why on God’s green earth would anyone do that?" This is a question you might pose to the {{fiacds}}, who confabulated the {{tag|FIA}}'s [[Professional Client Agreement]], which does ''exactly'' that.
I know what you are thinking. "But why on God’s green earth would anyone do that?" This is a question you might pose to the {{fiacds}}, who confabulated the [[FIA]]’s [[Professional Client Agreement]], which does ''exactly'' that.

Latest revision as of 13:30, 14 August 2024

===Assignment and its effect on Netting and Set-off=== Could a right to assign by way of security upset close-out netting such that one should forbid parties making assignments by way of security of their rights under a master netting agreement (such as an ISDA Master Agreement or a 2010 GMSLA), for fear of undermining your carefully organised netting opinions?

Generally: No.

  • An assignment by way of security is a preferred claim in the assignor’s insolvency over the realised value of certain rights the assignor holds against its counterparty. It is not a direct transfer of those rights to an assignee: the counterparty is still obliged to the assignor, not the assignee, and any claim the assignee would have against the counterparty would only be by way of subrogation of the assignor’s claim, should the assignor have imploded in the meantime or something.
  • “Nemo dat quod non habet”:[1] the unaffected counterparty’s rights cannot be improved (or worsened) by assignment and, it being a single agreement, on termination of the agreement the assignee’s claim is to the termination amount determined under the Agreement, which involves terminating all transactions and determining the aggregate mark-to-market and applying close-out netting. No one can give what they do not have.[2]
  • The assignee can be in no better position than the assignor and this takes subject to any set-off. The conduct of the debtor vis a vis the assignee is irrelevant, unless it gives rise to an estoppel. See Bibby Factors Northwest Ltd v HFD Ltd (paragraphs 38 and 48).[3]

At the point of closeout, the assignee’s right is to any termination payment payable to the Counterparty. Therefore any assignment of rights is logically subject to the netting, as opposed to potentially destructive of it.

But: This is only true insofar as your netting agreement does not actively do something crazy, like disapplying netting of receivables which have been subject to an assignment and dividing these amounts off as "excluded termination amounts not subject to netting".

I know what you are thinking. "But why on God’s green earth would anyone do that?" This is a question you might pose to the FIA’s crack drafting squad™, who confabulated the FIA’s Professional Client Agreement, which does exactly that.

  1. ↑ “A chap cannot give away what he doesn’t own in the first place.” Of course, try telling that to a prime brokerage lawyer, or a counterparty to a 1994 NY CSA.
  2. ↑ Except under New York law — isn’t that right, rehypothecation freaks?
  3. ↑ Bibby Factors Northwest Ltd v HFD Ltd [2015] EWCACiv 1908
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