Template:Isda Automatic Early Termination comp: Difference between revisions

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{{isdacomparisons|83262|40195|40196}}
{{isdacomparisons|83262|40195|40196}}
The ISDA’s {{{{{1}}}|Automatic Early Termination}} provision triggered by certain types of {{{{{1}}}|Bankruptcy}} {{{{{1}}}|Event of Default}}. If one of those events happen, it [[deem]]s all {{{{{1}}}|Transactions}} under the {{isdama}} to have been immediately terminated. If the event was the institution of formal insolvency proceedings, ''the instant before'' the proceedings were filed. Yes, I know: some creative warping of [[lexophysics|lexophysical]] spacetime required there.  
{{drop|A|utomatic Early Termination}} first appeared as a ''named'' term in the {{1992ma}}. It did feature, uncredited, in the {{1987ma}}, though in this larval stage it was a blunt instrument indeed.  


It first appears as a named term in the {{1992ma}}. 1987 was still early doors in the life of the over-the-counter derivatives market — the first swap was only six years earlier, remember — and the Basel Committee murmurings about the capital risks posed by infinite leverage were only really just starting to take flight. Credit {{icds}} that they even thought about it, but assuming ''every'' insolvency regime in the world would jeopardise contractual provisions the moment a formal bankruptcy was declared was probably overkill. Well, it ''was'' overkill. Definitely. Yet another reason people should not use a {{1987ma}}
By 1992, the [[’squad]] had made some key adjustments:
{{gb|They made it an option you could elect in the Schedule, and typically only would elect against counterparties in one of the few jurisdictions where the local [[netting opinion]] required it.<li>
They narrowed down its scope, by excluding from its ambit limbs (2) ([[cashflow insolvency]]) and (7) (contractual sequestration) of the {{{{{1}}}|Bankruptcy}} definition.<li>
They also officially labelled it “{{{{{1}}}|Automatic Early Termination}}”.}}  


In the {{1992ma}} version {{icds}} narrowed down the scope of the provision in by disapplying limbs (2) ([[cashflow insolvency]]) and (7) (contractual sequestration) from the {{{{{1}}}|Bankruptcy}} definition, officially labelled the concept “{{{{{1}}}|Automatic Early Termination}}”, and rendered it as an electable option. Much more sensible. The language of {{{{{1}}}|6(a)}} did not change between the {{1992ma}} and the {{2002ma}}.
Thereafter they did not change the language of {{{{{1}}}|6(a)}} between the {{1992ma}} and the {{2002ma}}, though there ''was'' an adjustment to the definition of what counted as a “{{{{{1}}}|bankruptcy petition}}” under Section {{{{{1}}}|5(a)(vii)(4)}} of the {{{{{1}}}|Bankruptcy}} definition, to narrow down the applicability of the problematic [[grace period]]. Problematic for reasons we discuss at length in the premium section (see {{pjchotlink|Formal bankruptcy petitions and grace periods}}).

Latest revision as of 09:23, 12 October 2024

Redlines

Discussion

Automatic Early Termination first appeared as a named term in the 1992 ISDA. It did feature, uncredited, in the 1987 ISDA, though in this larval stage it was a blunt instrument indeed.

By 1992, the ’squad had made some key adjustments:

  • They made it an option you could elect in the Schedule, and typically only would elect against counterparties in one of the few jurisdictions where the local netting opinion required it.
  • They narrowed down its scope, by excluding from its ambit limbs (2) (cashflow insolvency) and (7) (contractual sequestration) of the {{{{{1}}}|Bankruptcy}} definition.
  • They also officially labelled it “{{{{{1}}}|Automatic Early Termination}}”.

Thereafter they did not change the language of {{{{{1}}}|6(a)}} between the 1992 ISDA and the 2002 ISDA, though there was an adjustment to the definition of what counted as a “{{{{{1}}}|bankruptcy petition}}” under Section {{{{{1}}}|5(a)(vii)(4)}} of the {{{{{1}}}|Bankruptcy}} definition, to narrow down the applicability of the problematic grace period. Problematic for reasons we discuss at length in the premium section (see Formal bankruptcy petitions and grace periods).

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