Specified Transaction - ISDA Provision

ISDA Anatomy™ →Go uptown 2002 ISDA "Specified Transaction” means, subject to the Schedule, (a) any transaction (including an agreement with respect to any such transaction) now existing or hereafter entered into between one party to this Agreement (or any Credit Support Provider of such party or any applicable Specified Entity of such party) and the other party to this Agreement (or any Credit Support Provider of such other party or any applicable Specified Entity of such other party) which is not a Transaction under this Agreement but (i) which is a rate swap transaction, swap option, basis swap, forward rate transaction, commodity swap, commodity option, equity or equity index swap, equity or equity index option, bond option, interest rate option, foreign exchange transaction, cap transaction, floor transaction, collar transaction, currency swap transaction, cross-currency rate swap transaction, currency option, credit protection transaction, credit swap, credit default swap, credit default option, total return swap, credit spread transaction, repurchase transaction, reverse repurchase transaction, buy/sell-back transaction, securities lending transaction, weather index transaction or forward purchase or sale of a security, commodity or other financial instrument or interest (including any option with respect to any of these transactions) or (ii) which is a type of transaction that is similar to any transaction referred to in clause (i) above that is currently, or in the future becomes, recurrently entered into in the financial markets (including terms and conditions incorporated by reference in such agreement) and which is a forward, swap, future, option or other derivative on one or more rates, currencies, commodities, equity securities or other equity instruments, debt securities or other debt instruments, economic indices or measures of economic risk or value, or other benchmarks against which payments or deliveries are to be made, (b) any combination of these transactions and (c) any other transaction identified as a Specified Transaction in this Agreement or the relevant confirmation. NB - paragraph breaks do not appear in the printed form. (view template) 1992 ISDA Template:ISDA Master Agreement 1992 Specified Transaction Definition (view template) 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.

See also: Failure to Pay, DUST and Cross Default under the ISDA
Used in the Default under Specified Transaction Event of Default under Section 5(a)(v) — fondly known to those in the know as “DUST”.

What?

Specified Transactions are those financial markets transactions between you and your counterparty other than those under the present ISDA Master Agreement, default under which justifies the wronged party closing out the present ISDA. “Specified Transactions” therefore specifically exclude Transactions under the ISDA itself for the sensible reason that a default under those is covered by by Failure to Pay or Deliver and Breach of Obligation. It might lead to a perverse result if misadventure under an ISDA Master Agreement Transaction which did not otherwise amount to an Event of Default, became one purely as a result of the DUST provision, however unlikely that may be.

Different formulations between the versions

A Specified Transaction under the 1992 ISDA is, by ISDA standards, monosyllabic to the point of being terse.

Under the 2002 ISDA it is expressed with far more of ISDA's signature sense of the Byzantine, expanding the basic definition 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.

At a glance: differences between the 1992 ISDA and the 2002 ISDA. As you can see a collossal improvement.

Enter the fiddlers

ISDA’s verbal profligacy won’t stop enthusiastic credit officers amplifying the list even further, of course. What about precious metal transactions? Letter of credit reimbursement obligations? Indebtedness? What indeed?

An odd cognitive dissonance

The framers of DUST deliberately neglected to include borrowed money or indebtedness, because these are picked up under the wider scope of the Cross Default provision which, of course, applies to indebtedness your counterparty owes to anyone, not just 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;
• A default under any other Specified Transaction between them would even if a smaller quantum of default. This is kind of counterintuitive. If you were to define DUST to include indebtedness, of course, you'd be covered.

• Default under Specified Transaction