Specified Transaction - ISDA Provision: Difference between revisions
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Note {{dust}} doesn't generally pick up contracts in the nature of [[borrowed money]] or [[indebtedness]], because these are picked up under the wider scope of the {{isdaprov|Cross Default}} provision which, of course, applies to indebtedness owed to anyone, not just by your counterparty to you. Still, there is weirdness: {{isdaprov|Cross Default}} contemplates a {{isdaprov|Threshold Amount}} before it can be triggered. {{isdaprov|DUST}} doesn't. So this leads to an odd gap: | Note {{dust}} doesn't generally pick up contracts in the nature of [[borrowed money]] or [[indebtedness]], because these are picked up under the wider scope of the {{isdaprov|Cross Default}} provision which, of course, applies to indebtedness owed to anyone, not just by your counterparty to you. Still, there is weirdness: {{isdaprov|Cross Default}} contemplates a {{isdaprov|Threshold Amount}} before it can be triggered. {{isdaprov|DUST}} doesn't. So this leads to an odd gap: | ||
A (sub Threshold Amount) default under {{isdaprov|Specified Indebtedness}} ''between the two contractual parties'' would not entitle the innocent party to close out, but a default under any other derivative transaction between them (i.e., as dfefined in {{isdaprov|Specified Transaction}}) ''would'' - even if the value of the payment default was smaller than the default on borrowed money. Kind of counterintuitive. | A (sub Threshold Amount) default under {{isdaprov|Specified Indebtedness}} ''between the two contractual parties'' would not entitle the innocent party to close out, but a default under any other derivative transaction between them (i.e., as dfefined in {{isdaprov|Specified Transaction}}) ''would'' - even if the value of the payment default was smaller than the default on borrowed money. Kind of counterintuitive. If you were to define {{dust}} to include indebtedness, you'd be covered. | ||
{{isdaanatomy}} | {{isdaanatomy}} | ||
*{{isdaprov|Default under Specified Transaction}} | *{{isdaprov|Default under Specified Transaction}} | ||
Revision as of 12:49, 1 February 2016
In gory detail
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1992 ISDA |
2002 ISDA
NB - paragraph breaks do not appear in the printed form. |
Commentary
Note the 1992 version excludes actual Transactions under the ISDA itself. This is for the sensible reason that a default under an ISDA Transaction is covered by elsewhere in the ISDA (eg Failure to Pay or Deliver and Breach of Obligation concepts, and it might lead to a perverse result if a Transaction was not otherwise an Event of default under any ISDA provision but the DUST provision, however unlikely that may be.
The 2002 ISDA expands the basic definition of Specified Transaction to specifically include futures credit derivatives, repo, stock lending, weather derivatives, NDFs, transactions executed under terms of business and other commodities or similar transactions that is presently or in future becomes common in the financial markets.
Note DUST doesn't generally pick up contracts in the nature of borrowed money or indebtedness, because these are picked up under the wider scope of the Cross Default provision which, of course, applies to indebtedness owed to anyone, not just by your counterparty to you. Still, there is weirdness: Cross Default contemplates a Threshold Amount before it can be triggered. DUST doesn't. So this leads to an odd gap:
A (sub Threshold Amount) default under Specified Indebtedness between the two contractual parties would not entitle the innocent party to close out, but a default under any other derivative transaction between them (i.e., as dfefined in Specified Transaction) would - even if the value of the payment default was smaller than the default on borrowed money. Kind of counterintuitive. If you were to define DUST to include indebtedness, you'd be covered.