Effect of Designation - ISDA Provision: Difference between revisions

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<sm>'''Previous''':  {{isdaprov|6(a)}}  | {{isdaprov|6(b)}}  '''Next''': {{isdaprov|6(d)}}  | {{isdaprov|6(e)}} </sm>
===Next Step===
Occe you have arrived at the {{isdaprov|Early Termination Date}}, then proceed to Section {{isdaprov|6(e)}} to determine the value.
Or Learn about it in one place at {{isdaprov|Closing out an ISDA Master Agreement}}.
 
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Latest revision as of 10:34, 14 June 2024

2002 ISDA Master Agreement

A Jolly Contrarian owner’s manual™

6(c) in a Nutshell

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Original text

6(c) Effect of Designation.

(i) If notice designating an Early Termination Date is given under Section 6(a) or 6(b), the Early Termination Date will occur on the date so designated, whether or not the relevant Event of Default or Termination Event is then continuing. (ii) Upon the occurrence or effective designation of an Early Termination Date, no further payments or deliveries under Section 2(a)(i) or 9(h)(i) in respect of the Terminated Transactions will be required to be made, but without prejudice to the other provisions of this Agreement. The amount, if any, payable in respect of an Early Termination Date will be determined pursuant to Sections 6(e) and 9(h)(ii).
See ISDA Comparison for a comparison between the 1992 ISDA and the 2002 ISDA.
The Varieties of ISDA Experience
Subject 2002 (wikitext) 1992 (wikitext) 1987 (wikitext)
Preamble Pre Pre Pre
Interpretation 1 1 1
Obligns/Payment 2 2 2
Representations 3 3 3
Agreements 4 4 4
EODs & Term Events 5 Events of Default: FTPDBreachCSDMisrepDUSTCross DefaultBankruptcyMWA Termination Events: IllegalityFMTax EventTEUMCEUMATE 5 Events of Default: FTPDBreachCSDMisrepDUSTCross DefaultBankruptcyMWA Termination Events: IllegalityTax EventTEUMCEUMATE 5 Events of Default: FTPDBreachCSDMisrepDUSSCross DefaultBankruptcyMWA Termination Events: IllegalityTax EventTEUMCEUM
Early Termination 6 Early Termination: ET right on EODET right on TEEffect of DesignationCalculations; Payment DatePayments on ETSet-off 6 Early Termination: ET right on EODET right on TEEffect of DesignationCalculationsPayments on ETSet-off 6 Early Termination: ET right on EODET right on TEEffect of DesignationCalculationsPayments on ET
Transfer 7 7 7
Contractual Currency 8 8 8
Miscellaneous 9 9 9
Offices; Multibranch Parties 10 10 10
Expenses 11 11 11
Notices 12 12 12
Governing Law 13 13 13
Definitions 14 14 14
Schedule Schedule Schedule Schedule
Termination Provisions Part 1 Part 1 Part 1
Tax Representations Part 2 Part 2 Part 2
Documents for Delivery Part 3 Part 3 Part 3
Miscellaneous Part 4 Part 4 Part 4
Other Provisions Part 5 Part 5 Part 5

Resources and Navigation

Index: Click to expand:

Comparisons

The framers of the 2002 ISDA daringly changed a “shall” to a “will” in the final line. We approve, to be clear, but this is kind of out of character for ISDA’s crack drafting squad™. Otherwise, identical.

Basics

Once you have designated your Early Termination Date under Section 6(a), proceed directly to Section 6(e) to determine the Close-out Amount (if you are under a 2002 ISDA, or “tiresomely unlabelled amount payable upon early termination of the ISDA Master Agreement” if you a labouring under a 1992 ISDA).

The key thing to observe here is that, suddenly, all Transactions vanish, and all payments and deliveries due under them are suspended, to be replaced by the single Close-out Amount per Transaction, which is then subsumed into the Early Termination Amount for the whole agreement. Note the Close-out Amount does not have an independent existence as a payable amount owed by any party at any point: it is simply a calculation one makes, by reference to a now extinguished Transaction, on the way to determining the whole-agreement Early Termination Amount. This is why a Transaction-specific guarantee is a flawed type of Credit Support Document — at the very point you call upon it, the Transaction will vanish.

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  • JC’s “nutshell” summary of the clause
  • Background reading and long-form essays
    • Executioners remorse: what happens if you change your mind?
    • Some thoughts about what the clause could usefully have said about the time at which you value Terminated Transactions

See also

References