Set-off - ISDA Provision: Difference between revisions
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{{ | {{nman|isda|2002|6(f)}} |
Latest revision as of 17:08, 29 August 2024
2002 ISDA Master Agreement
A Jolly Contrarian owner’s manual™ Go premium
Crosscheck: 6(f) in a Nutshell™
Original text
See ISDA Comparison for a comparison between the 1992 ISDA and the 2002 ISDA.
Resources and Navigation
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Comparisons
Neither the 1987 ISDA not the 1992 ISDA has a specific set-off provision, although the 1992 manages to define Set-off anyway.
ISDA published a suggested set-off provision in the 1992 User’s Guide, but no-one liked it, and before long several home-made versions were percolating around the market. These often permitted set-off between the Innocent Party’s Affiliates and the non-performing party.
ISDA’s crack drafting squad™ got the hint and implemented a fully-fledged set-off provision based on this language into the 2002 ISDA — but not without a little boo-boo. As to which, read on —
Basics
One does not exercise a set-off right willy nilly. Unless one is, mutually, settlement netting (where on a given day I owe you a sum, you owe me a sum, and we agree to settle by one of us paying the other the difference) set-off is a drastic remedy which will be seen as enemy action. You would not do it, without agreement, to any client you expected to keep. So, generally, use set-off as a remedy it only arises following an event of default.
A bit of a bish in the 2002 ISDA
Set-off in the 2002 ISDA borrows from the text used to build it into the 1992 ISDA but still contains a rather elementary fluff-up: it imagines a world like our own, but where the Early Termination Amount is payable one way, while all Other Amounts are only payable the other. Life, as any fule kno, is not always quite that convenient.
For example:
Payer owes Payee an Early Termination Amount of 10 |
But what if there are Other Amounts payable the same way as the Early Termination Amount?
Payer owes Payee an Early Termination Amount of 10 Net: Payee owes Payer 40. |
Not ideal. But fixable if you’re prepared to add some dramatically anal language:
6(f) Set-Off. Any Early Termination Amount (or any other amounts, whether or not arising under this Agreement, matured, contingent and irrespective of the currency, place of payment of booking of the obligation)” payable to one party (the “Payee”) by the other party (the “Payer”), ...
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See also
- Set-off generally
- Settlement netting