Template:Failure to pay procedure: Difference between revisions

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 Now armed with our crystalised {{{{{1}}}|Failure to Pay or Deliver}} {{{{{1}}}|Event of Default}} and with an {{{{{1}}}|Early Termination Date}} to target, we go directly to Section {{{{{1}}}|6(e)}}, noting as we fly over it, that Section {{{{{1}}}|6(c)}} reminds us [[for the avoidance of doubt]] that even if the {{{{{1}}}|Event of Default}} which triggers the {{{{{1}}}|Early Termination Date}} evaporates in the meantime — these things happen, okay? — yon {{{{{1}}}|Defaulting Party}}’s goose is still irretrievably cooked.<ref>If [[Credit department|Credit]] suddenly gets executioner’s remorse and wants to let the Defaulting Party off), the Non-defaulting Party will have to expressly terminate the close-out process, preferably by written notice. There’s an argument — though it is hard to picture the time or place on God’s green earth where a {{{{{1}}}|Defaulting Party}} would make it — that cancelling an in-flight close out is no longer exclusively in the Defaulting Party’s gift, and requires the NDP’s consent. It would be an odd, self-harming kind of Defaulting Party that would run ''that'' argument unless the market was properly gyrating.</ref>
-The trading and risk people need to come up with {{{{{1}}}|Close-out Amount}}s for all outstanding {{{{{1}}}|Transaction}}s. These are intended to be determined “as of” the {{{{{1}}}|Early Termination Date}}, being the date designated in your Section {{{{{1}}}|6(a)}} notice which had to be within 20 days of that notice. Now that makes it seem like you are facing a rather untimely cliff-edge if you can’t practicably close out your whole hedge book in 20 days, but note:
+The trading and risk people need to come up with {{{{{1}}}|Close-out Amount}}s for all outstanding {{{{{1}}}|Transaction}}s. Now note, even though you have designated an Early Termination Date not more than 20 days from your Section {{{{{1}}}|6(a)}} notice, it may well take you a lot longer to close out your portfolio than that, and as long as you are acting in a commercially reasonable way, you can take longer. '''The 20 days notice period is a red herring'''. There is a longer essay about the meaningless of that 20 day time limit [[By not more than 20 days’ notice|here]].
-{{quote|Each {{{{{1}}}|Close-out Amount}} will be determined as of the {{{{{1}}}|Early Termination Date}} ''or, if that would not be [[commercially reasonable]], as of the date or dates following the {{{{{1}}}|Early Termination Date}} as '''would''' be [[commercially reasonable]]''.<ref>This is in the definition of {{isdaprov|Close-out Amount}} ({{2002ma}}) and {{isda92prov|Loss}} ({{1992ma}}). Curiously, {{isda92prov|Market Quotation}} in the {{1992ma}} does it slightly differently, saying “The party making the determination (or its agent) will request each Reference Market-maker to provide its quotation to the extent reasonably practicable as of the same day and time (without regard to different time zones) ''on or as soon as reasonably practicable after the relevant Early Termination Date''.” We ''guess'' that gives a bit of flexibility, but is not quite so clear-cut. we suppose the point is that the Non-Affected Party can presumably hit the prices offered by the {{isda92prov|Reference Market Maker}}s — making the enormous assumption any will actually provide a price — and so isn’t subject to any market risk; which is good. But on the other hand, block-trading a huge portfolio on an arbitrary day you had to set because of the random requirement for “not more than 20 days” is hardly calculated to help the Defaulting Party. You would like to think common-sense would prevail for those dinosaurs still on the 1992, who are using the Market Quotation concept. Then again, the fact that they are still on a {{1992ma}} twenty years after it was superseded suggests somewhat that common sense may be lacking somewhere in the relationship. </ref>}}
-'''This is very important'''. This means<ref>Arguably unless you’re on a {{1992ma}} and using {{isda92prov|Market Quotation}} — see the footnote above.</ref> you don’t have to liquidate a portfolio in its entirety within 20 days, or even take the values as of that {{{{{1}}}|Early Termination Date}}. If you can, you should — but it may well not be commercially reasonable — or even possible — to. The [[Lehman]] insolvency took ''months'' to unwind. Note also that [[commercial reasonableness]] is viewed from the Non-Affected Party’s perspective. It is not a licence to do whatever the hell you want — but the court won’t second guess prudent application of your own models.
 Once they have done that you are ready for your Section {{{{{1}}}|6(e)}} notice.