Template:Isda Automatic Early Termination comp

Redlines

• 1987 ⇒ 1992: Redline of the ’92 vs. the ’87: comparison (and in reverse)
• 1992 ⇒ 2002: Redline of the ’02 vs. the ’92: comparison (and in reverse)
• 1987 ⇒ 2002: Redline of the ’92 vs. the ’87: comparison (and in reverse)

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Discussion

The ISDA’s {{{{{1}}}|Automatic Early Termination}} provision is triggered — sorry for the passive, but there is no way around it — by certain types of {{{{{1}}}|Bankruptcy}} {{{{{1}}}|Event of Default}}. If one of those events happen, it deems all {{{{{1}}}|Transactions}} under the ISDA Master Agreement to have been immediately terminated. If the event was the institution of formal insolvency proceedings, termination is deemed the instant before the proceedings were filed. Yes, I know: some creative warping of lexophysical spacetime required there.

It first appears as a named term in the 1992 ISDA. Look: 1987 was a difficult year. Many people made bad decisions back then. Plus, it was still early doors in the life of the over-the-counter derivatives market: the Basel Committee’s murmurings about the capital risks of infinite leverage were only really just starting to take flight.

So really, we should credit ISDA’s crack drafting squad™ that they even thought about it — but all the same, 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 to steer clear of the 1987 ISDA.

By the 1992 ISDA, the ’squad had narrowed down the scope of the provision in by excluding from its scope limbs (2) (cashflow insolvency) and (7) (contractual sequestration) of the {{{{{1}}}|Bankruptcy}} definition. They also officially labelled the concept “{{{{{1}}}|Automatic Early Termination}}” and rendered it as an electable option, which was much more sensible.

Thereafter they did not change the language of {{{{{1}}}|6(a)}} between the 1992 ISDA and the 2002 ISDA.