Template:M summ 2002 ISDA 5(a)(iii): Difference between revisions
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Before you even put your hand up: no, a [[Credit Support Annex]] between the two counterparties is ''not'' a {{isdaprov|Credit Support Document}}, at least under the English law construct: there it is a “{{isdaprov|Transaction}}” under the {{isdama}}. It is somewhat different with a {{1994csa}}, but even there the Users’ Guide cautions against treating a direct swap counterparty as a “{{isdaprov|Credit Support Provider}}” — the {{isdaprov|Credit Support Provider}} is meant to be a third party. However we think the effluxion of time and habitual pedantry of our American friends has eroded that presumption: these days a {{nycsa}} is routinely listed as a {{isdaprov|Credit Support Document}}. | Before you even put your hand up: no, a [[Credit Support Annex]] between the two counterparties is ''not'' a {{isdaprov|Credit Support Document}}, at least under the English law construct: there it is a “{{isdaprov|Transaction}}” under the {{isdama}}. It is somewhat different with a {{1994csa}}, but even there the Users’ Guide cautions against treating a direct swap counterparty as a “{{isdaprov|Credit Support Provider}}” — the {{isdaprov|Credit Support Provider}} is meant to be a third party. However we think the effluxion of time and habitual pedantry of our American friends has eroded that presumption: these days a {{nycsa}} is routinely listed as a {{isdaprov|Credit Support Document}}. | ||
Therefore, [[tedious]]ly — and we think it was avoiding precisely ''this'' tediosity that the Users’ Guide had in mind, but, best laid plans and all that — there is an ''[[ontological]]'' difference between the mechanics of [[close out]] when it comes to a failure under a {{nycsa}} when compared to non-payment under a {{csa}}. A {{csa}} is a {{isdaprov|Transaction}} under the {{isdama}} and is ''not'' a {{isdaprov|Credit Support Document}}. A failure to meet a [[margin call]] under a that annex or any of its modern English-law successors is therefore a {{isdaprov|Failure to Pay or Deliver}} under Section {{isdaprov|5(a)(i)}} of the actual {{isdama}}; a failure to post under a {{nycsa}} is a Section {{isdaprov|5(a)(iii)}} {{isdaprov|Credit Support | Therefore, [[tedious]]ly — and we think it was avoiding precisely ''this'' tediosity that the Users’ Guide had in mind, but, best laid plans and all that — there is an ''[[ontological]]'' difference between the mechanics of [[close out]] when it comes to a failure under a {{nycsa}} when compared to non-payment under a {{csa}}. A {{csa}} is a {{isdaprov|Transaction}} under the {{isdama}} and is ''not'' a {{isdaprov|Credit Support Document}}. A failure to meet a [[margin call]] under a that annex or any of its modern English-law successors is therefore a {{isdaprov|Failure to Pay or Deliver}} under Section {{isdaprov|5(a)(i)}} of the actual {{isdama}}; a failure to post under a {{nycsa}} is a Section {{isdaprov|5(a)(iii)}} {{isdaprov|Credit Support Default}}. | ||
Does this, in practical point of fact, make any difference at all? Is a 5(a)(i) {{isdaprov|Event of Default}} somehow stronger; more intimately connected to what you are about and therefore subtly preferable; more proper; having greater correctitude; or a matter of better ''form''? | Does this, in practical point of fact, make any difference at all? Is a Section {{isdaprov|5(a)(i)}} {{isdaprov|Event of Default}} somehow stronger; more intimately connected to what you are about and therefore subtly preferable; more proper; having greater correctitude; or a matter of better ''form''? | ||
As far as this old goat comprehends the world, it is not. | As far as this old goat comprehends the world, it is not. | ||
Revision as of 17:47, 6 May 2021
Note the charming contingency that ISDA’s crack drafting squad™ allows that a counterparty might default under a credit assurance offered by someone else altogether.
Before you even put your hand up: no, a Credit Support Annex between the two counterparties is not a Credit Support Document, at least under the English law construct: there it is a “Transaction” under the ISDA Master Agreement. It is somewhat different with a 1994 NY CSA, but even there the Users’ Guide cautions against treating a direct swap counterparty as a “Credit Support Provider” — the Credit Support Provider is meant to be a third party. However we think the effluxion of time and habitual pedantry of our American friends has eroded that presumption: these days a 1994 NY CSA is routinely listed as a Credit Support Document.
Therefore, tediously — and we think it was avoiding precisely this tediosity that the Users’ Guide had in mind, but, best laid plans and all that — there is an ontological difference between the mechanics of close out when it comes to a failure under a 1994 NY CSA when compared to non-payment under a 1995 CSA. A 1995 CSA is a Transaction under the ISDA Master Agreement and is not a Credit Support Document. A failure to meet a margin call under a that annex or any of its modern English-law successors is therefore a Failure to Pay or Deliver under Section 5(a)(i) of the actual ISDA Master Agreement; a failure to post under a 1994 NY CSA is a Section 5(a)(iii) Credit Support Default.
Does this, in practical point of fact, make any difference at all? Is a Section 5(a)(i) Event of Default somehow stronger; more intimately connected to what you are about and therefore subtly preferable; more proper; having greater correctitude; or a matter of better form?
As far as this old goat comprehends the world, it is not.