Loss - 1992 ISDA Provision

Template:Isda92anat Loss is a means of valuing Transactions following their Early Termination under the 1992 ISDA. Spoddy point: unlike its alternative Market Quotation, “Loss” includes the “Unpaid Amount” concept in its definition:

...Loss includes losses and costs (or gains) in respect of any payment or delivery required to have been made (assuming satisfaction of each applicable condition precedent) on or before the relevant Early Termination Date and not made, except, so as to avoid duplication, if Section 6(e)(i)(1) or (3) or 6(e)(ii)(2)(A) applies...

Duplication? What duplication? Ohhhh — that duplication.

The “except, so as to avoid duplication” coda looks to be a magnificent piece of ISDA discombobulation, because at first blush there doesn’t seem any risk of duplication: the excluded paragraphs all deal exclusively with ISDA Master Agreements where Market Quotation, and not Loss, applies. So this Loss definition seems entirely irrelevant ... until you notice that Settlement Amount used when valuing with Market Quotation defaults to Loss when, as most assuredly it will, Market Quotation turns out to be a totally impractical means of valuing a Terminated Transaction, since no-one will give you a price for a trade they can’t actually enter.

So it is a piece of massive discombobulation, but for a deeper reason than appears at first — namely, that Market Quotation is waste of space anyway.

Whatever, it is simply magical that the ISDA drafting committee saw fit to treat Loss, but not Market Quotation, as being converted into a Termination Currency Equivalent and including Unpaid Amounts, especially as Loss is a fallback when Market Quotation fails to work, as inevitably it will.

Loss no more

Under the 2002 ISDA it (and Market Quotation) was superseded by the better concept of the Close-out Amount.

See also

• Market Quotation
• Close-out Amount
• I’m sorry I asked