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Template:M gen 2002 ISDA 5(a)(v): Difference between revisions
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This is less drastic than the corresponding {{isdaprov|Cross Default}} provision, which imports all the {{isdaprov|Events of Default}} from all {{isdaprov|Specified Indebtedness}} into the present one<ref>I should say I am grateful to my correspondent Nick for his helpful suggestion here. I don’t get many correspondents so it is extra special when one writes in with actual useful feedback. Thanks Nick! (To my other correspondents: hi, nice to hear from you too, but no I have not been in a car accident recently.) </ref>, even if the counterparty to the defaulted contract has itself waived its rights to exercise. | This is less drastic than the corresponding {{isdaprov|Cross Default}} provision, which imports all the {{isdaprov|Events of Default}} from all {{isdaprov|Specified Indebtedness}} into the present one<ref>I should say I am grateful to my correspondent Nick for his helpful suggestion here. I don’t get many correspondents so it is extra special when one writes in with actual useful feedback. Thanks Nick! (To my other correspondents: hi, nice to hear from you too, but no I have not been in a car accident recently.) </ref>, even if the counterparty to the defaulted contract has itself waived its rights to exercise. | ||
===Default under ''any'' {{isdaprov|Specified Transaction}}, and the question of overreach=== | |||
{{isdaprov|DUST}} attaches to a “default” (not defined) under ''any'' {{isdaprov|Specified Transaction}}, and not ''''all''''' {{isdaprov|Specified Transaction}}s. This is a little given the avowed intent of DUST, which is to address credit concerns. If you have a credit concern with a counterparty under a derivative-like master agreement, you are hardly likely to be closing out some, but not other Transactions. You’ll be closing out the lot. | |||
There are some types of {{isdaprov|Specified Transaction}} — notably [[stock loans]] — where “[[default]]”, in the wider sense of “not performing ''delivery'' obligations when due”, are a common experience in the market, as a result of operational settlement failures, and don’t have any particular credit content. Indeed the {{gmsla}}’s concept of [[mini close-out]]<ref>See Para {{gmslaprov|9.2}} of the {{gmsla}}</ref> addresses exactly this contingency: your counterparty has suffered a settlement glitch, you want to close-out the transaction and [[buy in]] your counterparty so you can cover your own onward delivery obligations, but there is no suggestion your counterparty is nose-diving into the side of a hill. Indeed, the [[Mini close-out - GMSLA Provision|mini-closeout]] is explicitly described as being ''not'' an {{gmslaprov|Event of Default}}. This is why Section {{isdaprov|5(a)(v)}}(3) failure to ''deliver''' references ''all'' Transactions, while a Section 5(a)(v)(1) failure to ''pay'' does not. | |||
So we have a lot of sympathy with the point, pedantic though it may be, that the [[DUST]] formulation is wider than it needs to be. An amendment to the following effect wouldn’t be out of the question: | |||
References in section {{isdaprov|5(a)(v)}} | |||
===Final payments=== | ===Final payments=== | ||
The reason for the second limb of the definition is to catch final payments, which can’t be accelerated, since they’re already due. | The reason for the second limb of the definition is to catch final payments, which can’t be accelerated, since they’re already due. | ||
{{DUST and Cross Default Comparison}} | {{DUST and Cross Default Comparison}} | ||