Template:M gen 2002 ISDA 6(f): Difference between revisions
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Amwelladmin (talk | contribs) (Created page with "===Cross-affiliate set-off=== The {{2002ma}}’s {{isdaprov|Set-off}} provision refers to a “Payer” and “Payee”. Since either the “{{isdaprov|Payer}}” or t...") |
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===Cross-[[affiliate]] [[set-off]]=== | ===Cross-[[affiliate]] [[set-off]]=== | ||
The {{2002ma}}’s {{isdaprov|Set-off}} provision refers to a | The {{2002ma}}’s {{isdaprov|Set-off}} provision refers to a “{{isdaprov|Payer}}” and “{{isdaprov|Payee}}”. Since either the “{{isdaprov|Payer}}” or the “{{isdaprov|Payee}}” could be the {{isdaprov|Innocent Party}}<ref>i.e., non-{{isdaprov|Defaulting Party}} or the non-{{isdaprov|Affected Party}}.</ref>, including {{isdaprov|Affiliates}} into the 2002 definition becomes problematic and cumbersome. | ||
Generally, market practice is therefore to do the following: | Generally, market practice is therefore to do the following: | ||
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*'''Where {{isdaprov|Affiliate}}s are ''not'' required''': use the {{2002ma}} standard {{isdaprov|set-off}} wording above. | *'''Where {{isdaprov|Affiliate}}s are ''not'' required''': use the {{2002ma}} standard {{isdaprov|set-off}} wording above. | ||
But cross affiliate set-off is a pretty rum affair in any case. Generally set-off requires mutuality of payment, currency, time and counterparty, so setting off between affiliates is liable to challenge anyway (unless you have [[cross-guarantee]] arrangements). And in | But cross affiliate [[set-off]] is a pretty rum affair in any case. Generally, [[set-off]] requires mutuality of payment, currency, time and counterparty, so setting off between [[affiliate|affiliates]] is liable to challenge anyway (unless you have [[cross-guarantee]] arrangements). And in these modern days of bank recovery and resolution, conjoining claims between entities which are supposed to be siloed and independent isn’t really the thing. | ||
===Scope of Set-off=== | ===Scope of Set-off=== | ||
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Often [[broker]]s will also want to set-off where there is an {{isdaprov|Illegality}} or {{isdaprov|ATE}}. There is no specific reference to all {{isdaprov|Transaction}}s being {{isdaprov|Affected Transaction}}s but this is implied in any set-off provision by its nature: | Often [[broker]]s will also want to set-off where there is an {{isdaprov|Illegality}} or {{isdaprov|ATE}}. There is no specific reference to all {{isdaprov|Transaction}}s being {{isdaprov|Affected Transaction}}s but this is implied in any set-off provision by its nature: | ||
*If only some transactions are {{isdaprov|Affected Transactions}} and so only a portion of outstanding | *If only some transactions are {{isdaprov|Affected Transactions}} and so only a portion of outstanding {{isdaprov|Transaction}}s are being terminated then there is an on-going relationship and unilateral set-off is not appropriate. | ||
*i.e., if you '' | *i.e., if you ''weren’t'' terminating all {{isdaprov|Transaction}}s, it would be drastic and counterproductive to a relationship to use a [[set-off]]. | ||
*As such, | *As such, the {{isdaprov|Tax Event}} and {{isdaprov|Tax Event Upon Merger}} provisions (those not caught by your wording) are more likely to only affect certain transactions and not all {{isdaprov|Transaction}}s and therefore set-off is not likely to be relevant in such instances. | ||
*'''{{isdaprov|Force Majeure}}''': The {{1992ma}} contains no {{isdaprov|Force Majeure}} provision. Commercially, it is not likely that an | *'''{{isdaprov|Force Majeure}}''': The {{1992ma}} contains no {{isdaprov|Force Majeure}} provision. Commercially, it is not likely that an {{isdama}} would be closed-out as a result of a {{isdaprov|Termination Event}} as these are generally viewed as non-fault and [[set-off]] would generally not be relevant. | ||
*'''{{isdaprov|Illegality}}''' does allow either party to terminate but this is limited to all {{isdaprov|Affected Transaction}}s which may not result in a [[close-out]] of the entire | *'''{{isdaprov|Illegality}}''' does allow either party to terminate but this is limited to all {{isdaprov|Affected Transaction}}s which may not result in a [[close-out]] of the entire {{isdama}}. In fact, the definition used of {{isdaprov|Affected Transaction}}s makes it clear that in the cases of {{isdaprov|Illegality}}, {{isdaprov|Tax Event Upon Merger}} or {{isdaprov|Tax Event}} then it will only be transactions affected by the {{isdaprov|Termination Event}} that are closed-out. In relation to {{isdaprov|ATE}}s and {{isdaprov|CEUM}} this will be all {{isdaprov|Transaction}}s and so set-off is relevant. |