Template:M summ 2002 ISDA Specified Indebtedness: Difference between revisions
Amwelladmin (talk | contribs) Created page with "A simple and innocuous enough provision. Almost redundant — why go to the trouble of defining borrowed money as another term? (Answer: because some firms, in their wisdo..." |
Amwelladmin (talk | contribs) No edit summary |
||
| Line 5: | Line 5: | ||
What of a failure to pay [[initial margin]]? Technicallty this is not the IM payer’s indebtedness — indeed when paid, it is the IM receiver’s indebtedness to the IM payer — so while it certainly comprises a failure to pay when due, the value of the {{isdaprov|Specified Indebtedness}} that failure contributes to the {{isdaprov|Threshold Amount}} might be nil, or even ''negative''. | What of a failure to pay [[initial margin]]? Technicallty this is not the IM payer’s indebtedness — indeed when paid, it is the IM receiver’s indebtedness to the IM payer — so while it certainly comprises a failure to pay when due, the value of the {{isdaprov|Specified Indebtedness}} that failure contributes to the {{isdaprov|Threshold Amount}} might be nil, or even ''negative''. | ||
See also the clumsier (but materially similar) definition of “{{efetprov|Specified Indebtedness}}” in the {{efetma}}. | |||
Revision as of 18:52, 19 March 2020
A simple and innocuous enough provision. Almost redundant — why go to the trouble of defining borrowed money as another term? (Answer: because some firms, in their wisdom, will wish to change the definition of borrowed money to include derivatives, other trading exposures, or even any payment obligations of any kind, and for those people, Specified Indebtedness is a (somewhat) less loaded term.)[1].
In any case, what should one make of “borrowed money”? Could it include repo and stock loan obligations? Amounts owed to trade creditors? (In each case no, according to Simon Firth - see here)
What of a failure to pay initial margin? Technicallty this is not the IM payer’s indebtedness — indeed when paid, it is the IM receiver’s indebtedness to the IM payer — so while it certainly comprises a failure to pay when due, the value of the Specified Indebtedness that failure contributes to the Threshold Amount might be nil, or even negative.
See also the clumsier (but materially similar) definition of “Specified Indebtedness” in the EFET Master Agreement.
- ↑ By the way, the JC’s personal view is that one should not widen the definition beyond the normal conception of “borrowed money”, and if one is a bank, may wish to narrow it, to exclude deposits. See the article on ISDA’s Cross Default Event of Default for more information.