Template:M gen 2002 ISDA 6(f): Difference between revisions
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Amwelladmin (talk | contribs) Created page with "===Cross-affiliate set-off=== The {{2002ma}}’s {{isdaprov|Set-off}} provision refers to a “Payer” and “Payee”. Since either the “{{isdaprov|Payer}}” or t..." |
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===Cross-[[affiliate]] [[set-off]]=== | ===Cross-[[affiliate]] [[set-off]]=== | ||
The {{2002ma}}’s {{isdaprov|Set-off}} provision refers to a | The {{2002ma}}’s {{isdaprov|Set-off}} provision refers to a “{{isdaprov|Payer}}” and “{{isdaprov|Payee}}”. Since either the “{{isdaprov|Payer}}” or the “{{isdaprov|Payee}}” could be the {{isdaprov|Innocent Party}}<ref>i.e., non-{{isdaprov|Defaulting Party}} or the non-{{isdaprov|Affected Party}}.</ref>, including {{isdaprov|Affiliates}} into the 2002 definition becomes problematic and cumbersome. | ||
Generally, market practice is therefore to do the following: | Generally, market practice is therefore to do the following: | ||
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*'''Where {{isdaprov|Affiliate}}s are ''not'' required''': use the {{2002ma}} standard {{isdaprov|set-off}} wording above. | *'''Where {{isdaprov|Affiliate}}s are ''not'' required''': use the {{2002ma}} standard {{isdaprov|set-off}} wording above. | ||
But cross affiliate set-off is a pretty rum affair in any case. Generally set-off requires mutuality of payment, currency, time and counterparty, so setting off between affiliates is liable to challenge anyway (unless you have [[cross-guarantee]] arrangements). And in | But cross affiliate [[set-off]] is a pretty rum affair in any case. Generally, [[set-off]] requires mutuality of payment, currency, time and counterparty, so setting off between [[affiliate|affiliates]] is liable to challenge anyway (unless you have [[cross-guarantee]] arrangements). And in these modern days of bank recovery and resolution, conjoining claims between entities which are supposed to be siloed and independent isn’t really the thing. | ||
===Scope of Set-off=== | ===Scope of Set-off=== | ||
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Often [[broker]]s will also want to set-off where there is an {{isdaprov|Illegality}} or {{isdaprov|ATE}}. There is no specific reference to all {{isdaprov|Transaction}}s being {{isdaprov|Affected Transaction}}s but this is implied in any set-off provision by its nature: | Often [[broker]]s will also want to set-off where there is an {{isdaprov|Illegality}} or {{isdaprov|ATE}}. There is no specific reference to all {{isdaprov|Transaction}}s being {{isdaprov|Affected Transaction}}s but this is implied in any set-off provision by its nature: | ||
*If only some transactions are {{isdaprov|Affected Transactions}} and so only a portion of outstanding | *If only some transactions are {{isdaprov|Affected Transactions}} and so only a portion of outstanding {{isdaprov|Transaction}}s are being terminated then there is an on-going relationship and unilateral set-off is not appropriate. | ||
*i.e., if you '' | *i.e., if you ''weren’t'' terminating all {{isdaprov|Transaction}}s, it would be drastic and counterproductive to a relationship to use a [[set-off]]. | ||
*As such, | *As such, the {{isdaprov|Tax Event}} and {{isdaprov|Tax Event Upon Merger}} provisions (those not caught by your wording) are more likely to only affect certain transactions and not all {{isdaprov|Transaction}}s and therefore set-off is not likely to be relevant in such instances. | ||
*'''{{isdaprov|Force Majeure}}''': The {{1992ma}} contains no {{isdaprov|Force Majeure}} provision. Commercially, it is not likely that an | *'''{{isdaprov|Force Majeure}}''': The {{1992ma}} contains no {{isdaprov|Force Majeure}} provision. Commercially, it is not likely that an {{isdama}} would be closed-out as a result of a {{isdaprov|Termination Event}} as these are generally viewed as non-fault and [[set-off]] would generally not be relevant. | ||
*'''{{isdaprov|Illegality}}''' does allow either party to terminate but this is limited to all {{isdaprov|Affected Transaction}}s which may not result in a [[close-out]] of the entire | *'''{{isdaprov|Illegality}}''' does allow either party to terminate but this is limited to all {{isdaprov|Affected Transaction}}s which may not result in a [[close-out]] of the entire {{isdama}}. In fact, the definition used of {{isdaprov|Affected Transaction}}s makes it clear that in the cases of {{isdaprov|Illegality}}, {{isdaprov|Tax Event Upon Merger}} or {{isdaprov|Tax Event}} then it will only be transactions affected by the {{isdaprov|Termination Event}} that are closed-out. In relation to {{isdaprov|ATE}}s and {{isdaprov|CEUM}} this will be all {{isdaprov|Transaction}}s and so set-off is relevant. | ||
Revision as of 21:12, 13 April 2020
Cross-affiliate set-off
The 2002 ISDA’s Set-off provision refers to a “Payer” and “Payee”. Since either the “Payer” or the “Payee” could be the Innocent Party[1], including Affiliates into the 2002 definition becomes problematic and cumbersome.
Generally, market practice is therefore to do the following:
- Where Affiliates are required: to use bespoke wording.
- Where Affiliates are not required: use the 2002 ISDA standard set-off wording above.
But cross affiliate set-off is a pretty rum affair in any case. Generally, set-off requires mutuality of payment, currency, time and counterparty, so setting off between affiliates is liable to challenge anyway (unless you have cross-guarantee arrangements). And in these modern days of bank recovery and resolution, conjoining claims between entities which are supposed to be siloed and independent isn’t really the thing.
Scope of Set-off
The 2002 ISDA set-off wording allows set-off following an Event of Default, CEUM, or any other Termination Event where there is one Affected Party and all outstanding transactions are Affected Transactions.
Often brokers will also want to set-off where there is an Illegality or ATE. There is no specific reference to all Transactions being Affected Transactions but this is implied in any set-off provision by its nature:
- If only some transactions are Affected Transactions and so only a portion of outstanding Transactions are being terminated then there is an on-going relationship and unilateral set-off is not appropriate.
- i.e., if you weren’t terminating all Transactions, it would be drastic and counterproductive to a relationship to use a set-off.
- As such, the Tax Event and Tax Event Upon Merger provisions (those not caught by your wording) are more likely to only affect certain transactions and not all Transactions and therefore set-off is not likely to be relevant in such instances.
- Force Majeure: The 1992 ISDA contains no Force Majeure provision. Commercially, it is not likely that an ISDA Master Agreement would be closed-out as a result of a Termination Event as these are generally viewed as non-fault and set-off would generally not be relevant.
- Illegality does allow either party to terminate but this is limited to all Affected Transactions which may not result in a close-out of the entire ISDA Master Agreement. In fact, the definition used of Affected Transactions makes it clear that in the cases of Illegality, Tax Event Upon Merger or Tax Event then it will only be transactions affected by the Termination Event that are closed-out. In relation to ATEs and CEUM this will be all Transactions and so set-off is relevant.
- ↑ i.e., non-Defaulting Party or the non-Affected Party.