Template:Specified indebtedness capsule: Difference between revisions

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{{{{{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.<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 Cross Default under the {{isdama}} 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.
 
{{Derivatives as specified indebtedness}}
====Stock loans and repo as {{isdaprov|Specified Indebtedness}}
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]]).
====[[Initial margin]]: a [[trick for young players]]====
What of a failure to pay an {{csaprov|Independent Amount}}? Technically this is ''not'' a payment of [[indebtedness]], and if the [[IM]] payer is up-to-date on [[variation margin]] payments, there may not be any [[indebtedness]] at all. Indeed, once the [[IM]] payer has paid required [[IM]], the [[IM]] ''receiver'' becomes indebted to the ''payer'' for the return of the [[initial margin]] — 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 {{{{{1}}}|Specified Indebtedness}} to include ''all'' payment obligations, but that, for a host of reasons you can find [[Cross Default - ISDA Provision|here]] — is whopping great ''canard a l’orange'' in [[Jolly Contrarian|this old contrarian’s]] opinion.

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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