Template:M summ 1992 ISDA 2(e): Difference between revisions

From The Jolly Contrarian
Jump to navigation Jump to search
← Older edit
VisualWikitext
No edit summary
Tags: Mobile edit Mobile web edit
Replaced content with "{{isda 2(e) summ|isda92prov}}"
Tag: Replaced
 
(2 intermediate revisions by the same user not shown)
Line 1: Line 1:
A provision to to cover that netherworld between when a party defaults on an obligation and when the other party close it out. You might think this might be a short period, of necessity — if the other guy isn't performing the contract I am hardly going to sit around and do nothing, am I? — but a swap transaction isn’t like a normal lending transaction, and the innocent party might be significantly [[out of the money]] on the {{isda92prov|Transaction}}, and therefore quite happy to to do nothing, particularly since, as long as the default is continuing, Section {{isda92prov|2(a)(iii)}} suspends that party’s own payment and delivery obligations under the Transaction indefinitely.
{{isda 2(e) summ|isda92prov}}
 
Note the difference between a defaulted ''payment'' obligation and a defaulted ''delivery'' obligation: payments have a fairly anal penalty interest accrual regime; deliveries are left up to the parties to agree for themselves in the {{isda92prov|Schedule}}. This, in the JC’s unsolicited opinion, is a bit wet on ISDA’s part: a delivery obligation (usually of a tradable security or commodity) clearly has an observable market value as of its due delivery date. It is hard to see why interest could not accrue on that notional value. But anyway.

Latest revision as of 10:47, 5 January 2024

Section 2(e) covers that netherworld between when a party defaults on its obligations under a Transaction and when (and if)the other, innocent, party closes that Transaction out.

Now, you might think this would of necessity be a short period — if the other guy is in default I am hardly going to sit around and do nothing, am I? — but a swap transaction isn’t like a normal lending transaction, the innocent party might be significantly out of the money on the Transaction, and therefore quite happy to to do nothing, particularly since, as long as the default is continuing, Section 2(a)(iii) suspends that party’s own payment and delivery obligations under the Transaction indefinitely.

Note the difference between a defaulted payment obligation and a defaulted delivery obligation: payments have a fairly anal penalty interest accrual regime; deliveries are left up to the parties to agree for themselves in the Schedule. This, in the JC’s unsolicited opinion, is a bit wet on ISDA’s part: a delivery obligation (usually of a tradable security or commodity) clearly has an observable market value as of its due delivery date. It is hard to see why interest could not accrue on that notional value. But anyway.

Retrieved from "https://jollycontrarian.com/index.php?title=Template:M_summ_1992_ISDA_2(e)&oldid=82266"