Template:Specified indebtedness capsule: Difference between revisions

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A simple and innocuous enough provision. Almost redundant, you’d think — why go to the trouble of defining “[[borrowed money]]” as another term? (Answer: because many firms, in their wisdom, will wish to change the definition  in the {{{{{1}}}|Schedule}} to include [[derivatives]], other trading exposures, things owed to their [[affiliate|affiliates]], or even any payment obligations of any kind, and for those people, “{{{{{1}}}|Specified Indebtedness}}” is a (somewhat) less loaded term.)<ref>By the way, the [[JC]]’s personal view is that one should ''not'' widen the definition beyond the normal conception of “[[borrowed money]]”, and if one is a [[Bank/Credit Institution|bank]], may wish to ''narrow'' it, to exclude [[Deposit|deposits]]. See the article on ISDA’s {{{{{1}}}|Cross Default}} for more information.</ref>.
{{{{{1}}}|Specified Indebtedness}} is a simple and innocuous enough provision. Almost redundant, you’d think — why go to the trouble of defining “[[borrowed money]]” as another term? (Answer: because many firms, in their wisdom, will wish to change the definition  in the {{{{{1}}}|Schedule}} to include [[derivatives]], other trading exposures, things owed to their [[affiliate|affiliates]], or even any payment obligations of any kind, and for those people, “{{{{{1}}}|Specified Indebtedness}}” is a (somewhat) less loaded term.
 
In any case, what should one make of “[[borrowed money]]”? Could it include [[repo]] and [[stock loan]] obligations under [[securities financing transaction]]s? Amounts owed to trade creditors? (In each case no, according to Simon Firth - see [[borrowed money|here]])
 
What of a failure to pay [[initial margin]]? Technically this is not a repayment of indebtedness, and if the IM payer is up-to-date on [[variation margin]] payments, there may not be any indebtedness at all. Indeed when IM is paid, the IM ''receiver'' becomes indebted, for its return, to the ''payer'' — so while it certainly comprises a failure to pay when due, the value of the {{{{{1}}}|Specified Indebtedness}} that failure contributes to the {{{{{1}}}|Threshold Amount}} might be nil, or even ''negative''. This, your risk people will say, is why one should widen Specified Indebtedness to include all payments, but that, for a host of reasons you can find [[Cross Default - ISDA Provision|here]] — is whopping great ''canard a l’orange''.

Latest revision as of 11:44, 22 May 2023

{{{{{1}}}|Specified Indebtedness}} is a simple and innocuous enough provision. Almost redundant, you’d think — why go to the trouble of defining “borrowed money” as another term? (Answer: because many firms, in their wisdom, will wish to change the definition in the {{{{{1}}}|Schedule}} to include derivatives, other trading exposures, things owed to their affiliates, or even any payment obligations of any kind, and for those people, “{{{{{1}}}|Specified Indebtedness}}” is a (somewhat) less loaded term.

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