Template:Isda 5(a)(i) summ: Difference between revisions
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{{ | {{{{{1}}}|Failure to Pay}} under Section {{{{{1}}}|5(a)(i)}} of the {{isdama}}: where a party fails to pay or deliver on time and does not remedy before the [[grace period]] expires. The [[grace period]] for a {{2002ma}} is one {{{{{1}}}|Local Business Day}}; shorter than the three Local Business Days in the {{1992ma}}. This fact alone has kept a number of market counterparties on the 1992 form, nearly thirty years after it was upgraded. | ||
===CSAs=== | ===CSAs=== | ||
There’s a technical funny due to the American habit of insisting on a pledge-only {{nycsa}} and then designating it as a {{ | There’s a technical funny due to the American habit of insisting on a pledge-only {{nycsa}} and then designating it as a {{{{{1}}}|Credit Support Document}} (against the hopes and dreams of {{icds}} when it drafted the Users’ Guide, but still), and that is a failure to pay under an English law CSA is a Section {{{{{1}}}|5(a)(i)}} {{{{{1}}}|Failure to Pay or Deliver}}, whereas a failure to pay under a New York Law CSA is a Section {{{{{1}}}|5(a)(iii)}} {{{{{1}}}|Credit Support Default}}. Doth any difference it maketh? None, so far as we can see. | ||
Funny old world we live in. | Funny old world we live in. | ||
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Say you have some awkward client who insists on a right to meet a credit support payment some other way? For example, by terminating other [[in-the-money]] | Say you have some awkward client who insists on a right to meet a credit support payment some other way? For example, by terminating other [[in-the-money]] | ||
{{ | {{{{{1}}}|Transactions}}, in lieu of ponying up cold, hard, folding spondoolies. Does this convert a hardcore payment obligation into something more vapid, vague and fluffy? Something that the failure to effectively carry out doesn’t quite qualify as a {{{{{1}}}|Failure to Pay or Deliver}}? | ||
“Look, I know I didn’t meet my [[variation margin]], but, Sir, your honour, I didn’t have to actually ''pay'' it. I was allowed to terminate something else ''in lieu''. So while I ''could'' have sorted this all out with a payment — and I think we can all agree that might have been the most sensible thing to do — and I ''was'' obliged to sort this out ''somehow'', I wasn’t ''obliged'' to sort it out ''with a payment''. Sir. Your honour.” | “Look, I know I didn’t meet my [[variation margin]], but, Sir, your honour, I didn’t have to actually ''pay'' it. I was allowed to terminate something else ''in lieu''. So while I ''could'' have sorted this all out with a payment — and I think we can all agree that might have been the most sensible thing to do — and I ''was'' obliged to sort this out ''somehow'', I wasn’t ''obliged'' to sort it out ''with a payment''. Sir. Your honour.” | ||
Why might this matter? Isn’t it an {{ | Why might this matter? Isn’t it an {{{{{1}}}|Event of Default}} either way? What difference does it make whether it was a {{{{{1}}}|Breach of Agreement}} or a {{{{{1}}}|Failure to Pay or Deliver}}? | ||
I can already see hands shooting up from the [[ISDA ninja]]s in the front row. And yes, my little ''tricoteuses'', you are right. ''[[Grace period]]s''. That is the difference. A {{ | I can already see hands shooting up from the [[ISDA ninja]]s in the front row. And yes, my little ''tricoteuses'', you are right. ''[[Grace period]]s''. That is the difference. A {{{{{1}}}|Failure to Pay or Deliver}} has a grace period of ''one'' day.<ref>''Three'' if you are one of those antediluvian types on a {{1992ma}}.</ref> A {{{{{1}}}|Breach of Agreement}} has a ''thirty'' day grace period. Even the hyenas will have given up and gone home by then. | ||
Revision as of 12:18, 12 May 2021
{{{{{1}}}|Failure to Pay}} under Section {{{{{1}}}|5(a)(i)}} of the ISDA Master Agreement: where a party fails to pay or deliver on time and does not remedy before the grace period expires. The grace period for a 2002 ISDA is one {{{{{1}}}|Local Business Day}}; shorter than the three Local Business Days in the 1992 ISDA. This fact alone has kept a number of market counterparties on the 1992 form, nearly thirty years after it was upgraded.
CSAs
There’s a technical funny due to the American habit of insisting on a pledge-only 1994 NY CSA and then designating it as a {{{{{1}}}|Credit Support Document}} (against the hopes and dreams of ISDA’s crack drafting squad™ when it drafted the Users’ Guide, but still), and that is a failure to pay under an English law CSA is a Section {{{{{1}}}|5(a)(i)}} {{{{{1}}}|Failure to Pay or Deliver}}, whereas a failure to pay under a New York Law CSA is a Section {{{{{1}}}|5(a)(iii)}} {{{{{1}}}|Credit Support Default}}. Doth any difference it maketh? None, so far as we can see.
Funny old world we live in.
Payments satisfied other ways
One from the tricks for young players department.
Say you have some awkward client who insists on a right to meet a credit support payment some other way? For example, by terminating other in-the-money {{{{{1}}}|Transactions}}, in lieu of ponying up cold, hard, folding spondoolies. Does this convert a hardcore payment obligation into something more vapid, vague and fluffy? Something that the failure to effectively carry out doesn’t quite qualify as a {{{{{1}}}|Failure to Pay or Deliver}}?
“Look, I know I didn’t meet my variation margin, but, Sir, your honour, I didn’t have to actually pay it. I was allowed to terminate something else in lieu. So while I could have sorted this all out with a payment — and I think we can all agree that might have been the most sensible thing to do — and I was obliged to sort this out somehow, I wasn’t obliged to sort it out with a payment. Sir. Your honour.”
Why might this matter? Isn’t it an {{{{{1}}}|Event of Default}} either way? What difference does it make whether it was a {{{{{1}}}|Breach of Agreement}} or a {{{{{1}}}|Failure to Pay or Deliver}}?
I can already see hands shooting up from the ISDA ninjas in the front row. And yes, my little tricoteuses, you are right. Grace periods. That is the difference. A {{{{{1}}}|Failure to Pay or Deliver}} has a grace period of one day.[1] A {{{{{1}}}|Breach of Agreement}} has a thirty day grace period. Even the hyenas will have given up and gone home by then.