Two Affected Parties - ISDA Provision

In gory detail

1992 ISDA 6(b)(iii) Two Affected Parties. If an Illegality under Section 5(b)(i)(1) or a Tax Event occurs and there are two Affected Parties, each party will use all reasonable efforts to reach agreement within 30 days after notice thereof is given under Section 6(b)(i) on action to avoid that Termination Event. (view template)

2002 ISDA 6(b)(iii) Two Affected Parties. If a Tax Event occurs and there are two Affected Parties, each party will use all reasonable efforts to reach agreement within 30 days after notice of such occurrence is given under Section 6(b)(i) to avoid that Termination Event. (view template)

Template:Becareful Exercise Caution here: Under the 1992 ISDA version, if your Failure To Pay also amounts to an Illegality it is deemed to be an Illegality, and if there are two Affected Parties there is a signficant delay in your ability to close out.

Differences between 1992 ISDA and 2002 ISDA

Note also that reference to Illegality has been excised from the 2002 ISDA version.

Per Mr Firth’s bible, it was changed because it was found to be difficult in practice to implement a transfer or amendment after an Illegality. Also, it could be that people realised that if an Illegality occurred you don’t want to have to wait 30 days to terminate, especially since you cannot rely on 2(a)(iii) to withhold payments in the mean time.

This was raised at a recent last ISDA meeting: Template:A&O pointed out that there was a template amendment agreement to change the 1992 ISDA Illegality definition into the 2002 ISDA (if you don’t want to use the 2002 to start with).