Template:Failure to pay procedure: Difference between revisions

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==={{{{{1}}}|Failure to pay}} procedure===
JC’s has updated the step-by-step guide to closing out an ISDA and it is now {{premium}}. You can access it '''[[pjc:Close out|here]]'''.
Terminating the {{isdama}} on this ground requires:
*'''Failure''': A {{{{{1}}}|Failure to Pay or Deliver}}, on day '''T'''. This is an {{{{{1}}}|Event of Default}} under Section {{{{{1}}}|5(a)(i)}}. You must have:
::- a Failure by the Defaulting Party to make a payment or delivery when due
::- That the Defaulting Party has not remedied that failure within the applicable [[grace period]]. Under a {{2002ma}} the default is one {{isdaprov|Local Business Day}}. Under the {{1992ma}} the default is ''three'' {{isda92prov|Local Business Day}}s. ''But check the {{{{{1}}}|Schedule}}'': This is the sort of thing that counterparties adjust: {{2002ma}} are often adjusted to conform to the {{1992ma}} standard of three {{{{{1}}}|LBD}}s, for example.
*'''Notice of failure''': The innocent party to give notice of the failure (which, [[Q.E.D.]], can be validly given ''only after'' [[close of business]] on the due date for payment or delivery (until then, the guilty party isn't technically “guilty”) and, by dint of Section {{{{{1}}}|12(a)}} ({{{{{1}}}|Notices}}), the notice will only be deemed effective on the following business day, T+1.
:*'''Spod’s note''': This notice requirement is key from a {{{{{1}}}|Cross Default}} perspective<ref>If you have been indelicate enough to widen the scope of your [[cross default]] to include [[derivatives]], that is.</ref>: if you don’t have it, ''any'' failure to pay under your {{isdama}}, however innocuous — even an operational oversight — automatically counts as an {{{{{1}}}|Event of Default}}, and gives a different person to the right to close ''their'' {{isdama}} with your {{{{{1}}}|Defaulting Party}} because of it defaulted to ''you'', even though (a) the {{{{{1}}}|Defaulting Party}}hasn’t defaulted to ''them'', and (b) you have decided not to take any action against the {{{{{1}}}|Defaulting Party}} yourself.
*'''[[Grace Period]]''': After the notice of failure is delivered, the grace period must have expired (this depends on the ISDA edition you’re using: '''one''' under the {{2002isda}}; and '''three''' under the {{1992isda}}, and check also Part 5 of the ISDA {{{{{1}}}|Schedule}} to see if it has been amended specifically for the counterparty. <br>
Therefore close of business T+2 (standard {{2002ma}}), T+4 (standard {{1992ma}})
*'''Section {{{{{1}}}|6(e)}} notice''': TheSection {{{{{1}}}|6(e)}} notice terminating the Transactions may only be served after close of business at the expiry of the [[grace period]], so therefore the first day on which a termination notice following a failure to pay {{{{{1}}}|Event of Default}} can be effective under an {{isdama}} is T+3 ({{2002isda}}) or T+5 {{1992isda}}.

Latest revision as of 17:23, 4 February 2024

JC’s has updated the step-by-step guide to closing out an ISDA and it is now premium content. You can access it here.

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