Default Under Specified Transaction - ISDA Provision: Difference between revisions
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This is less drastic than the corresponding {{isdaprov|Cross Default}} provision, which imports all the {{isdaprov|Events of Default}} from all {{isdaprov|Specified Indebtedness}} into the present one<ref>I should say I am grateful to my correspondent Nick for his helpful suggestion here. I don’t get many correspondents so it is extra special when one writes in with actual useful feedback. Thanks Nick! (To my other correspondents: hi, nice to hear from you too, but no I have not been in a car accident recently.) </ref>, even if the counterparty to the defaulted contract has itself waived its rights to exercise. | This is less drastic than the corresponding {{isdaprov|Cross Default}} provision, which imports all the {{isdaprov|Events of Default}} from all {{isdaprov|Specified Indebtedness}} into the present one<ref>I should say I am grateful to my correspondent Nick for his helpful suggestion here. I don’t get many correspondents so it is extra special when one writes in with actual useful feedback. Thanks Nick! (To my other correspondents: hi, nice to hear from you too, but no I have not been in a car accident recently.) </ref>, even if the counterparty to the defaulted contract has itself waived its rights to exercise. | ||
===Drafting oddities=== | ===Drafting oddities=== | ||
====Payment acceleration versus delivery acceleration==== | ====Payment acceleration versus delivery acceleration — {{gmslaprov|mini close-out}}==== | ||
Upon a payment default under {{isdaprov|5(a)(v)}}(1), only that particular transaction must be accelerated (it doesn’t require full close out of the relevant [[Master agreement|Master Agreement]]. But a delivery default under {{isdaprov|5(a)(v)}}(3), is only triggered if ''the whole Master Agreement is closed out''. | Upon a payment default under {{isdaprov|5(a)(v)}}(1), only that particular [[transaction]] must be accelerated (it doesn’t require full close out of the relevant [[Master agreement|Master Agreement]]. But a ''delivery'' default under {{isdaprov|5(a)(v)}}(3), is only triggered if ''the '''whole''' Master Agreement is closed out''. | ||
Why would that be? | Why would that be? Oh! Yes, [[Stock loan ninja]] at the back, with your hand up! | ||
:'''''[[Stock loan ninja]]''' (''for it is he'')'': Sir! Sir! Please sir, is this to stop the [[mini-closeout]] of a single {{gmslaprov|Loan}} under a {{gmsla}}? | |||
:'''''The [[JC]]''' (beaming inscrutably)'': Yeeeees — Go on — ? | |||
:'''''SLN''''': Sir, please sir, settlement failures under a [[stock loan]] are often a function of market illiquidity (the asset to be delivered isn’t available) and aren’t necessarily indicative of credit deterioration, sir, so should not necessarily trigger a [[DUST]] under the [[ISDA]]. But this situation would never apply to a simple cash payment. On the other hand, if the ''whole'' {{gmsla}} is closed out as a result of a delivery fail, you clearly are in a credit-stress situation. | |||
:'''''[[JC]]''''': Excellent! | |||
====Final payments==== | ====Final payments==== |