Early Termination - ISDA Provision

6 Early Termination

6(b) Right to Terminate following Termination Event

6(b)(i) Notice (of Termination Event)

6(b)(ii) Transfer to Avoid Termination Event

6(b)(iii) Two Affected Parties

6(b)(iv) Right to Terminate

6(e) Payments on Early Termination

6(e)(i) Events of Default (Early Termination Payments)

6(e)(ii) Termination Events (Early Termination Payments)

6(e)(iii) Adjustment for Bankruptcy (Early Termination Payments)

6(e)(iv) Adjustment for Illegality or Force Majeure Event

6(e)(v) Pre-Estimate (Early Termination Payments)

How the Close Out Mechanism Works

An Event of Default gives the Non-defaulting Party a right (but not an obligation) to designate an Early Termination Date with respect to all outstanding Transactions on not more than 20 days' notice.

• Note that Automatic Early Termination removes that optionality in the event of a counterparty's insolvency and is therefore sub-optimal from the Non-defaulting Party's perspective, and thus should only be employed where the consequences of not having it would be worse (e.g. in jurisdictons where close-out netting may be challenged in an insolvency but not before). (That is to say, this is one provision you should not insist on just because the other party insists upon it against you).
• For what this optionality not to terminate means, and how controversial it can be, see the commentary to Section 2(a)(iii).
  

Once all Transactions are terminated, you move to Section 6(e) which directs how to value the transactions (it depends on who is the Defaulting Party, and whether you have alected Loss or Market Quotation, and First Method or Second Method. Under the 2002 ISDA it is much easier.

ISDA Anatomy™ →Go uptown {{{2}}} Index: Click ᐅ to expand: ISDA Navigation See ISDA Comparison for a comparison between the 1992 ISDA and the 2002 ISDA. The Varieties of ISDA Experience Subject 2002 (wikitext) 1992 (wikitext) 1987 (wikitext) Preamble Pre Pre Pre Interpretation 1 1 1 Obligns/Payment 2 2 2 Representations 3 3 3 Agreements 4 4 4 EODs & Term Events 5 Events of Default: FTPD • Breach • CSD • Misrep • DUST • Cross Default • Bankruptcy • MWA Termination Events: Illegality • FM • Tax Event • TEUM • CEUM • ATE 5 Events of Default: FTPD • Breach • CSD • Misrep • DUST • Cross Default • Bankruptcy • MWA Termination Events: Illegality • Tax Event • TEUM • CEUM • ATE 5 Events of Default: FTPD • Breach • CSD • Misrep • DUSS • Cross Default • Bankruptcy • MWA Termination Events: Illegality • Tax Event • TEUM • CEUM Early Termination 6 Early Termination: ET right on EOD • ET right on TE • Effect of Designation • Calculations; Payment Date • Payments on ET • Set-off 6 Early Termination: ET right on EOD • ET right on TE • Effect of Designation • Calculations • Payments on ET • Set-off 6 Early Termination: ET right on EOD • ET right on TE • Effect of Designation • Calculations • Payments on ET Transfer 7 7 7 Contractual Currency 8 8 8 Miscellaneous 9 9 9 Offices; Multibranch Parties 10 10 10 Expenses 11 11 11 Notices 12 12 12 Governing Law 13 13 13 Definitions 14 14 14 Schedule Schedule Schedule Schedule Termination Provisions Part 1 Part 1 Part 1 Tax Representations Part 2 Part 2 Part 2 Documents for Delivery Part 3 Part 3 Part 3 Miscellaneous Part 4 Part 4 Part 4 Other Provisions Part 5 Part 5 Part 5 Tell me more Sign up for our newsletter — or just get in touch: for ½ a weekly 🍺 you get to consult JC. Ask about it here.