|
|
| (51 intermediate revisions by the same user not shown) |
| Line 1: |
Line 1: |
| ==={{{{{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:
| |
| ::(i) a Failure by the Defaulting Party to make a payment or delivery when due
| |
| ::(ii) a notice by the Non-Defaulting Party to the Defaulting Party that the failure has happened.
| |
| *'''Notice of failure''': The {{{{{1}}}|Non-defaulting Party}} must give notice of the {{{{{1}}}|Failure to Pay or Deliver}} (which since it is not due until the close of business on a given day, [[Q.E.D.]], can be validly given ''only after'' [[close of business]] on the due date for payment or delivery and, by dint of Section {{{{{1}}}|12(a)}} ({{{{{1}}}|Notices}}), the notice will only be deemed effective on the following Local Business Day: ie '''T+1'''. <ref>'''Spod’s note''': This notice requirement is key from a {{{{{1}}}|Cross Default}} perspective (if you have been indelicate enough to widen the scope of your [[cross default]] to include [[derivatives]], that is): 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.</ref>
| |
| *'''[[Grace Period]]''': Once the notice is effective, the {{{{{1}}}|Defaulting Party}} has a window (the grace period) in which it can remedy the failure to pay or deliver. the standard grace periods are set out in Section {{{{{1}}}|5(a)(i)}}. Be careful here: under a {{2002ma}} the standard is '''''one''''' {{isdaprov|Local Business Day}}. Under the {{1992ma}} the standard is '''''three''''' {{isda92prov|Local Business Day}}s. ''But check the {{{{{1}}}|Schedule}}'' because in either case this is the sort of thing that counterparties adjust: {{2002ma}}s are often adjusted to conform to the {{1992ma}} standard of three {{{{{1}}}|LBD}}s, for example. To be clear, once you have a clear, notified Failure to Pay or Deliver, you have to wait ''at least'' one and possibly three or more {{isdaprov|Local Business Day}}s before doing anything. Therefore you are on tenterhooks until the [[close of business]] '''T+2''' {{isdaprov|LBD}}s (standard {{2002ma}}), or '''T+4''' {{isda92prov|LBD}}s (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}}.
| |
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.