Template:M gen 2002 ISDA 2(c): Difference between revisions

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Created page with "===Multiple Transaction Payment Netting=== “'''{{isdaprov|Multiple Transaction Payment Netting}}'''” is a defined term introduced in the {{2002ma}} in place of the more cl..."
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===Multiple Transaction Payment Netting===
{{Multiple Transaction Payment Netting}}
“'''{{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)}}.
 
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}}'').
 
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".
 
Good on them, eh? Of course the one person who is going to have no clue about how transaction netting works at an operational level is your ISDA negotiator. Seeing as. (per above) payment netting is an operational fact not a legal right as such, and it doesn’t need to be in the contract, and your ISDA negotiator will care not one row of buttons whether or not {{isdaprov|Multiple Transaction Payment Netting}} applies, you might think to put something diffident like “The parties will agree any Multiple Transaction Payment Netting arrangements separately as an operational matter.”
{{Exposure under csa}}
{{ISDA transaction and collateral flows}}
{{ISDA transaction and collateral flows}}

Latest revision as of 17:54, 9 January 2022

Transaction flows and collateral flows

In a fully margined ISDA Master Agreement, all other things being equal, the termination of a Transaction will lead to two equal and opposite effects:

The strict sequence of these payments ought to be that the Transaction termination payment goes first, and the collateral return follows, since it can only really be calculated and called once the termination payment has been made.

I know what you’re thinking. Hang on! that means the termination payer pays knowing this will increase its Exposure for the couple of days it will take for that collateral return to find its way back. That’s stupid!

What with the regulators’ obsession minimise systemic counterparty credit risk, wouldn’t it be better to apply some kind of settlement netting in anticipation, to keep the credit exposure down?

Now, dear reader, have you learned nothing? It might be better, but “better” is not how ISDA documentation rolls. The theory of the ISDA and CSA settlement flows puts the Transaction payment egg before the variation margin chicken so, at the moment, Transaction flows and collateral flows tend to be handled by different operations teams, and their systems don’t talk. Currently, the payer of a terminating transaction has its heart in its mouth for a day or so.

Industry efforts to date have been targeting at shortening the period between the Exposure calculation and the final payment of the collateral transfer.

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