|
|
| (4 intermediate revisions by the same user not shown) |
| Line 1: |
Line 1: |
| {{isdaanat|Specified Transaction}} | | {{nman|isda|2002|Specified Transaction}} |
| ''See also: [[Failure to Pay, DUST and Cross Default under the ISDA]]''<br>
| |
| Used in the {{isdaprov|Default under Specified Transaction}} {{isdaprov|Event of Default}} under Section {{isdaprov|5(a)(v)}} — fondly known to those in the know as “{{isdaprov|DUST}}”.
| |
| ===What?===
| |
| {{isdaprov|Specified Transaction}}s are those financial markets transactions between you and your counterparty ''other than those under the present {{isdama}}'', default under which justifies the wronged party closing out the present {{isda}}. “Specified Transactions” therefore specifically ''exclude'' {{isdaprov|Transactions}} under the ISDA itself for the sensible reason that a default under those is covered by by {{isdaprov|Failure to Pay or Deliver}} and {{isdaprov|Breach of Obligation}}. It might lead to a perverse result if misadventure under an {{isdama}} {{isdaprov|Transaction}} which did not otherwise amount to an {{isdaprov|Event of Default}}, became one purely as a result of the {{isdaprov|DUST}} provision, however unlikely that may be.
| |
| ===Different formulations between the versions===
| |
| A {{isdaprov|Specified Transaction}} under the {{1992ma}} is, by ISDA standards, monosyllabic to the point of being terse.
| |
| | |
| Under the {{2002ma}} it is expressed with far more of ISDA's signature sense of the Byzantine, expanding the basic definition to specifically include [[futures]] [[credit derivatives]], [[repo]], [[stock lending]], [[weather derivative]]s,<ref>Oh, look! Anyone remember {{tag|Enron}}? Anyone feeling nostalgic for the good old days when men were men, fraud was fraud, financial accountants were profit centres and anything seemed possible?</ref> [[NDF]]s, transactions executed under terms of business and other commodities or similar transactions that is presently or in future becomes common in the financial markets.
| |
| | |
| [[File:Specified Transaction.png|450px|thumb|center|At a glance: differences between the {{1992ma}} and the {{2002ma}}. As you can see a colossal improvement.]]
| |
| | |
| ===Enter the fiddlers===
| |
| ISDA’s verbal profligacy won’t stop enthusiastic credit officers amplifying the list even further, of course. What about [[precious metals|precious metal]] transactions? {{tag|Letter of credit}} reimbursement obligations? [[Indebtedness]]? What indeed?
| |
| | |
| ====An odd [[cognitive dissonance]]====
| |
| The framers of {{dust}} ''deliberately'' neglected to include [[borrowed money]] or [[indebtedness]], because these are picked up under the wider scope of the {{isdaprov|Cross Default}} provision which, of course, applies to indebtedness your counterparty owes to ''anyone'', not just you. Still, there is weirdness: {{isdaprov|Cross Default}} contemplates a {{isdaprov|Threshold Amount}} before it can be triggered. {{isdaprov|DUST}} doesn’t. So this leads to an odd gap:
| |
| | |
| *A (sub {{isdaprov|Threshold Amount}}) default under {{isdaprov|Specified Indebtedness}} ''between the two contractual parties'' would not entitle the innocent party to close out;
| |
| *A default under ''any other {{isdaprov|Specified Transaction}}'' between them ''would'' ''''' even if a smaller quantum of default'''''. This is kind of counterintuitive. If you were to define {{dust}} to include indebtedness, of course, you'd be covered.
| |
| | |
| {{isdaanatomy}}
| |
| *{{isdaprov|Default under Specified Transaction}}
| |
| {{ref}}
| |
2002 ISDA Master Agreement
A Jolly Contrarian owner’s manual™
Specified Transaction in a Nutshell™
|
The JC’s Nutshell™ summary of this term has moved uptown to the subscription-only ninja tier. For the cost of ½ a weekly 🍺 you can get it here. Sign up at Substack. You can even ask questions! Ask about it here.
|
Original text
“Specified Transaction” means, subject to the Schedule,
- (a) any transaction (including an agreement with respect to any such transaction) now existing or hereafter entered into between one party to this Agreement (or any Credit Support Provider of such party or any applicable Specified Entity of such party) and the other party to this Agreement (or any Credit Support Provider of such other party or any applicable Specified Entity of such other party) which is not a Transaction under this Agreement but
- (i) which is a rate swap transaction, swap option, basis swap, forward rate transaction, commodity swap, commodity option, equity or equity index swap, equity or equity index option, bond option, interest rate option, foreign exchange transaction, cap transaction, floor transaction, collar transaction, currency swap transaction, cross-currency rate swap transaction, currency option, credit protection transaction, credit swap, credit default swap, credit default option, total return swap, credit spread transaction, repurchase transaction, reverse repurchase transaction, buy/sell-back transaction, securities lending transaction, weather index transaction or forward purchase or sale of a security, commodity or other financial instrument or interest (including any option with respect to any of these transactions) or
- (ii) which is a type of transaction that is similar to any transaction referred to in clause (i) above that is currently, or in the future becomes, recurrently entered into in the financial markets (including terms and conditions incorporated by reference in such agreement) and which is a forward, swap, future, option or other derivative on one or more rates, currencies, commodities, equity securities or other equity instruments, debt securities or other debt instruments, economic indices or measures of economic risk or value, or other benchmarks against which payments or deliveries are to be made,
- (b) any combination of these transactions and
- (c) any other transaction identified as a Specified Transaction in this Agreement or the relevant confirmation.
|
Resources and Navigation
Index: Click ᐅ to expand:
|
|
Comparisons
A Specified Transaction under the 1992 ISDA is, by the standards of ISDA’s crack drafting squad™, monosyllabic to the point of being terse. But that is as nothing compared to the 1987 ISDA, which wasn’t even called a Specified Transaction, but was just a Specified Swap.
Under the 2002 ISDA, it is expressed with far more of the squad’s signature sense of derring-do and the Byzantine, expanding the basic definition:
Basics
Used in the Default under Specified Transaction Event of Default under Section 5(a)(v) — fondly known to those in the know as “DUST”.
What?
Specified Transactions are those financial markets transactions between you and your counterparty other than those under the present ISDA Master Agreement, default under which justifies the wronged party closing out the present ISDA. “Specified Transactions” therefore specifically exclude Transactions under the ISDA itself for the sensible reason that a default under those is covered by by Failure to Pay or Deliver and Breach of Obligation. It might lead to a perverse result if misadventure under an ISDA Master Agreement Transaction which did not otherwise amount to an Event of Default, became one purely as a result of the DUST provision, however unlikely that may be.
Credit support annexes?
We are going to go out on a limb here and say that little parenthetical “(including an agreement with respect to any such transaction)” is, if not deliberately designed that way, is at least calculated[2] to capture failures under a credit support annex which, yes, is a Transaction under an ISDA Master Agreement but no, is not really a swap or anything really like one.
There is enough chat about Credit Support Providers (yes, yes, the counterparty itself is of course not a Credit Support Provider) to make us think, on a fair, large and liberal interpretation, that a default under the CSA to a swap Transaction is meant to be covered.
Premium content
Here the free bit runs out. Subscribers click 👉 here. New readers sign up 👉 here and, for ½ a weekly 🍺 go full ninja about all these juicy topics👇
- JC’s “nutshell” summary of the clause
- Background reading and long-form essays
-
- Fiddler ahoy! Great opportunities for members of the credit department to “add value”
- The odd cognitive dissonance between DUST and Cross Default
|
See also
References
- ↑ Oh, look! Anyone remember Enron? Anyone feeling nostalgic for the good old days when men were men, fraud was fraud, financial accountants were profit centres and anything seemed possible? No?
- ↑ In the sense of being “likely”.