Template:Failure to pay procedure: Difference between revisions
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::(i) a Failure by the Defaulting Party to make a payment or delivery when due | ::(i) a Failure by the Defaulting Party to make a payment or delivery when due | ||
::(ii) That the {{{{{1}}}|Defaulting Party}} has not remedied that failure within the applicable [[grace period]] set out in Section {{{{{1}}}|5(a)(i)}}. Under a {{2002ma}} the standard is ''one'' {{isdaprov|Local Business Day}}. Under the {{1992ma}} the standard is ''three'' {{isda92prov|Local Business Day}}s. ''But check the {{{{{1}}}|Schedule}}'' because in either case this is the sort of thing that counterparties adjust: {{2002ma}}s are often adjusted to conform to the {{1992ma}} standard of three {{{{{1}}}|LBD}}s, for example. | ::(ii) That the {{{{{1}}}|Defaulting Party}} has not remedied that failure within the applicable [[grace period]] set out in Section {{{{{1}}}|5(a)(i)}}. Under a {{2002ma}} the standard is ''one'' {{isdaprov|Local Business Day}}. Under the {{1992ma}} the standard is ''three'' {{isda92prov|Local Business Day}}s. ''But check the {{{{{1}}}|Schedule}}'' because in either case this is the sort of thing that counterparties adjust: {{2002ma}}s are often adjusted to conform to the {{1992ma}} standard of three {{{{{1}}}|LBD}}s, for example. | ||
*'''Notice of failure''': The {{{{{1}}}|Non-defaulting Party}} must give notice of the {{{{{1}}}|Failure to Pay or Deliver}} (which since it is not due until the close of business on a given day, [[Q.E.D.]], can be validly given ''only after'' [[close of business]] on the due date for payment or delivery and, by dint of Section {{{{{1}}}|12(a)}} ({{{{{1}}}|Notices}}), the notice will only be deemed effective on the following Local Business Day: ie '''T+1'''. <ref>'''Spod’s note''': This notice requirement is key from a {{{{{1}}}|Cross Default}} perspective (if you have been indelicate enough to widen the scope of your [[cross default]] to include [[derivatives]], that is): if you don’t have it, ''any'' failure to pay under your {{isdama}}, however innocuous — even an operational oversight — automatically counts as an {{{{{1}}}|Event of Default}}, and gives a different person to the right to close ''their'' {{isdama}} with your {{{{{1}}}|Defaulting Party}} because of it defaulted to ''you'', even though (a) the {{{{{1}}}|Defaulting Party}} hasn’t defaulted to ''them'', and (b) you have decided not to take any action against the {{{{{1}}}|Defaulting Party}} yourself.<ref> | *'''Notice of failure''': The {{{{{1}}}|Non-defaulting Party}} must give notice of the {{{{{1}}}|Failure to Pay or Deliver}} (which since it is not due until the close of business on a given day, [[Q.E.D.]], can be validly given ''only after'' [[close of business]] on the due date for payment or delivery and, by dint of Section {{{{{1}}}|12(a)}} ({{{{{1}}}|Notices}}), the notice will only be deemed effective on the following Local Business Day: ie '''T+1'''. <ref>'''Spod’s note''': This notice requirement is key from a {{{{{1}}}|Cross Default}} perspective (if you have been indelicate enough to widen the scope of your [[cross default]] to include [[derivatives]], that is): if you don’t have it, ''any'' failure to pay under your {{isdama}}, however innocuous — even an operational oversight — automatically counts as an {{{{{1}}}|Event of Default}}, and gives a different person to the right to close ''their'' {{isdama}} with your {{{{{1}}}|Defaulting Party}} because of it defaulted to ''you'', even though (a) the {{{{{1}}}|Defaulting Party}} hasn’t defaulted to ''them'', and (b) you have decided not to take any action against the {{{{{1}}}|Defaulting Party}} yourself.</ref> | ||
*'''[[Grace Period]]''': After the notice of failure is delivered, the grace period must have expired (this depends on the ISDA edition you’re using: '''one''' under the {{2002isda}}; and '''three''' under the {{1992isda}}, and check also Part 5 of the ISDA {{{{{1}}}|Schedule}} to see if it has been amended specifically for the counterparty. <br> | *'''[[Grace Period]]''': After the notice of failure is delivered, the grace period must have expired (this depends on the ISDA edition you’re using: '''one''' under the {{2002isda}}; and '''three''' under the {{1992isda}}, and check also Part 5 of the ISDA {{{{{1}}}|Schedule}} to see if it has been amended specifically for the counterparty. <br> | ||
Therefore close of business T+2 (standard {{2002ma}}), T+4 (standard {{1992ma}}) | Therefore close of business T+2 (standard {{2002ma}}), T+4 (standard {{1992ma}}) | ||
*'''Section {{{{{1}}}|6(e)}} notice''': TheSection {{{{{1}}}|6(e)}} notice terminating the Transactions may only be served after close of business at the expiry of the [[grace period]], so therefore the first day on which a termination notice following a failure to pay {{{{{1}}}|Event of Default}} can be effective under an {{isdama}} is T+3 ({{2002isda}}) or T+5 {{1992isda}}. | *'''Section {{{{{1}}}|6(e)}} notice''': TheSection {{{{{1}}}|6(e)}} notice terminating the Transactions may only be served after close of business at the expiry of the [[grace period]], so therefore the first day on which a termination notice following a failure to pay {{{{{1}}}|Event of Default}} can be effective under an {{isdama}} is T+3 ({{2002isda}}) or T+5 {{1992isda}}. | ||
Revision as of 11:34, 13 March 2020
{{{{{1}}}|Failure to pay}} procedure
Terminating the ISDA Master Agreement on this ground requires:
- Failure: A {{{{{1}}}|Failure to Pay or Deliver}}, on day T. This is an {{{{{1}}}|Event of Default}} under Section {{{{{1}}}|5(a)(i)}}. You must have:
- (i) a Failure by the Defaulting Party to make a payment or delivery when due
- (ii) That the {{{{{1}}}|Defaulting Party}} has not remedied that failure within the applicable grace period set out in Section {{{{{1}}}|5(a)(i)}}. Under a 2002 ISDA the standard is one Local Business Day. Under the 1992 ISDA the standard is three Local Business Days. But check the {{{{{1}}}|Schedule}} because in either case this is the sort of thing that counterparties adjust: 2002 ISDAs are often adjusted to conform to the 1992 ISDA standard of three {{{{{1}}}|LBD}}s, for example.
- Notice of failure: The {{{{{1}}}|Non-defaulting Party}} must give notice of the {{{{{1}}}|Failure to Pay or Deliver}} (which since it is not due until the close of business on a given day, Q.E.D., can be validly given only after close of business on the due date for payment or delivery and, by dint of Section {{{{{1}}}|12(a)}} ({{{{{1}}}|Notices}}), the notice will only be deemed effective on the following Local Business Day: ie T+1. [1]
- Grace Period: After the notice of failure is delivered, the grace period must have expired (this depends on the ISDA edition you’re using: one under the 2002 ISDA; and three under the 1992 ISDA, and check also Part 5 of the ISDA {{{{{1}}}|Schedule}} to see if it has been amended specifically for the counterparty.
Therefore close of business T+2 (standard 2002 ISDA), T+4 (standard 1992 ISDA)
- Section {{{{{1}}}|6(e)}} notice: TheSection {{{{{1}}}|6(e)}} notice terminating the Transactions may only be served after close of business at the expiry of the grace period, so therefore the first day on which a termination notice following a failure to pay {{{{{1}}}|Event of Default}} can be effective under an ISDA Master Agreement is T+3 (2002 ISDA) or T+5 1992 ISDA.
- ↑ Spod’s note: This notice requirement is key from a {{{{{1}}}|Cross Default}} perspective (if you have been indelicate enough to widen the scope of your cross default to include derivatives, that is): if you don’t have it, any failure to pay under your ISDA Master Agreement, however innocuous — even an operational oversight — automatically counts as an {{{{{1}}}|Event of Default}}, and gives a different person to the right to close their ISDA Master Agreement with your {{{{{1}}}|Defaulting Party}} because of it defaulted to you, even though (a) the {{{{{1}}}|Defaulting Party}} hasn’t defaulted to them, and (b) you have decided not to take any action against the {{{{{1}}}|Defaulting Party}} yourself.