Template:Isda 9(c) summ

In which ISDA’s crack drafting squad™ grapple with the existential question: if I close out all my {{{{{1}}}|Transaction}}s because the other guy fundamentally breached the contract, can I still rely on the contract to manage my risk position and enforce my bargain?

Here is where the nuances of the ISDA Master Agreement come into play. We are deep into ontological territory here, fellows. For while the same thing might be an {{{{{1}}}|Event of Default}} and a fundamental breach of contract — almost certainly will be, in fact — treating that event as an {{{{{1}}}|Event of Default}} is to see it as “infra-contractual action”being a circumstance contemplated by and provided for within the four corners of your compact; while if you see it as a fundamental breach you cast your contract on the fire — what good are the promises in it, after all, if the other fellow won’t keep them? — and stretch yourself at the feet of the Queen’s Bench Division for redress from among the golden threads developed by the common law. These common law principles are rules about the contract, but not the rules of the contract. The contract itself it a smoldering husk.

Why does this matter here? Well, because netting. Close-out netting — as we all know a clever if somewhat artificial concept — is not something that just happens by operation of the common law (set-off is a narrower and less reliable thing), but relies on the patient midwifery of ISDA’s crack drafting squad™, and the sophisticated contrivances they popped into the ISDA Master Agreement itself; especially the parts that say all {{{{{{1}}}|Transactions}} form a {{{{{{1}}}|Single Agreement}}, and those long and dusty passages in Section {{{{{1}}}|6}} which painfully recount how one closes out and nets down all those exposures should things go tits up.

Now, it really wouldn’t do if one were found to have thrown those clever legal artifacts on the fire before seeking the common law’s help to manage your way out of a portfolio with a busted counterparty.