Template:Isda Automatic Early Termination comp: Difference between revisions

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{{isdacomparisons|83262|40195|40196}}
{{isdacomparisons|83262|40195|40196}}
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 [[deem]]s all {{{{{1}}}|Transactions}} under the {{isdama}} 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 [[Lexophysics|lexophysical]] spacetime required there.  
The ISDA’s {{{{{1}}}|Automatic Early Termination}} provision — colloquially “{{{{{1}}}|AET}}”, but not to be confused with “{{{{{1}}}|ATE}}” or “{{{{{1}}}|ETA}}” — is triggered — sorry for the [[passive]], but there is no way around it — by certain {{{{{1}}}|Bankruptcy}} {{{{{1}}}|Events of Default}}. Not all of them, though. If one of those events happen, {{{{{1}}}|AET}} [[deem]]s all {{{{{1}}}|Transactions}} under the {{isdama}} to be — or, in the case of a formal insolvency petition, ''have been'' — immediately terminated. In that last case, some creative warping of [[Lexophysics|lexophysical]] spacetime is required, which we will discuss below.  


It first appears as a named term in the {{1992ma}}. Look: 1987 was a difficult year. Many people made bad decisions back then.<ref>Take David Bowie: he released {{Br|Never Let Me Down}}.</ref> Plus, it was still early doors in the life of the over-the-counter derivatives market: the [[Basel Committee on Banking Supervision|Basel Committee]]’s murmurings about the capital risks of infinite leverage were only really just starting to take flight.  
{{{{{1}}}|Automatic Early Termination}} first appears as a named term in the {{1992ma}}. It did feature in the {{1987ma}}, though it was a blunt instrument indeed: it was mandatory and applied against every party in the case of ''any'' Bankruptcy event, regardless of the risk that party’s insolvency regime would jeopardise the {{isdama}}’s carefully machined close-out and netting mechanics. This was unquestionably overkill, and yet another reason to steer clear of the {{1987ma}}.


So really, we should credit {{icds}} 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 {{1987ma}}.
In the {{1992ma}}, the [[’squad]] had made some key adjustments to {{{{{1}}}|AET}}:
 
{{gb|They made it an option you could elect in the Schedule, and typically only would elect against a counterparty in one of the few jurisdictions where the [[netting opinion]] required it.<li>
By the {{1992ma}}, 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.  
They narrowed down its scope, by excluding limbs (2) ([[cashflow insolvency]]) and (7) (contractual sequestration) of the {{{{{1}}}|Bankruptcy}} definition from its ambit.<li>
They also officially labelled it “{{{{{1}}}|Automatic Early Termination}}”.}}


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

Revision as of 17:18, 9 September 2024

Redlines

Discussion

The ISDA’s {{{{{1}}}|Automatic Early Termination}} provision — colloquially “{{{{{1}}}|AET}}”, but not to be confused with “{{{{{1}}}|ATE}}” or “{{{{{1}}}|ETA}}” — is triggered — sorry for the passive, but there is no way around it — by certain {{{{{1}}}|Bankruptcy}} {{{{{1}}}|Events of Default}}. Not all of them, though. If one of those events happen, {{{{{1}}}|AET}} deems all {{{{{1}}}|Transactions}} under the ISDA Master Agreement to be — or, in the case of a formal insolvency petition, have been — immediately terminated. In that last case, some creative warping of lexophysical spacetime is required, which we will discuss below.

{{{{{1}}}|Automatic Early Termination}} first appears as a named term in the 1992 ISDA. It did feature in the 1987 ISDA, though it was a blunt instrument indeed: it was mandatory and applied against every party in the case of any Bankruptcy event, regardless of the risk that party’s insolvency regime would jeopardise the ISDA Master Agreement’s carefully machined close-out and netting mechanics. This was unquestionably overkill, and yet another reason to steer clear of the 1987 ISDA.

In the 1992 ISDA, the ’squad had made some key adjustments to {{{{{1}}}|AET}}:

  • They made it an option you could elect in the Schedule, and typically only would elect against a counterparty in one of the few jurisdictions where the netting opinion required it.
  • They narrowed down its scope, by excluding limbs (2) (cashflow insolvency) and (7) (contractual sequestration) of the {{{{{1}}}|Bankruptcy}} definition from its ambit.
  • They also officially labelled it “{{{{{1}}}|Automatic Early Termination}}”.

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

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