Default under specified transaction

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For the ISDA Master Agreement provision specifically see Default Under Specified Transaction

A default under specified transaction, or “DUST”, is a concept native to the ISDA Master Agreement but which you may see in other master trading documentation (but not a 2010 GMSLA or a Global Master Repurchase Agreement).

DUST gives a fellow the right to terminate the master trading agreement upon a default by her counterparty under one or more transactions documented under different Master Agreements between you and that same counterparty.

Compare and contrast with cross default, which allows you to terminate your master agreement when the counterparty defaults under indebtedness to a third party (not you).

Differences between cross default and DUST

Ideally, cross default and DUST should be mutually exclusive. They are meant to dovetail with each other, not cross over. This will not stop mission creep from over-zealous credit departments, who will try to expand the scope of each, leading to all kinds of cognitive dissonances and righteous indignation from the counterparty’s negotiator. As ammunition for your fruitless attempts to persuade the credit department to live in the real world for once, try these:

• Cross default generally references indebtedness where the exercising counterparty has significant loan-type exposure to the defaulter; DUST references bilateral derivative and trading transactions which tend not to be in the nature of indebtedness (it is true to say that the line between these can be gray, especially in the case of uncollateralised derivative relationships;
• Cross default is only triggered once a certain threshold amount of indebtedness is defaulted upon; DUST is triggered upon any breach;
• Cross default references your Counterparty owes to a third party outside your control; DUST references other obligations your counterparty owes you or an affiliate you can reasonably be expected to be in league with. (ie you can't generally trigger if your counterparty defaults on Specified Transactions it has on with third parties)
• DUST only comes about if the Specified Transaction in question has been actually accelerated, whereas cross default is available whether the primary creditor has accelerated or not. (A cross default which requires acceleration is called “cross acceleration”.)

See also

• Cross default
• Default Under Specified Transaction (ISDA)
• Event of default