Template:Isda 5(a)(vii) summ

There are two differences between the 1992 ISDA and 2002 ISDA definitions of Bankruptcy.

First, the 2002 ISDA has a slightly more specific concept of “insolvency”. In limb 4 (insolvency proceedings) a new limb (A) has been included to cover action taken by an entity-specific regulator or supervisor (as opposed to a common or garden insolvency proceeding): If initiated by a regulator, the game’s up as soon as the action is taken. If initiated by a random creditor, the action must have resulted in a winding-up order, or at least not have been discharged in 15 (not 30) days. Second, and unnervingly for those of little faith in their own accounts payble departments, the grace period in which one must arrange the dismissal of a vexations or undeserving insolvency petition (under {{{{{1}}}|5(a)(vii)}}(4)) or the exercise of security over assets (under {{{{{1}}}|5(a)(vii)}}(7)) is compressed from 30 days to 15 days. This, in aggregate over the whole global market, keeps many a negotiator in “meaningful” employment, has been a large reason why many organisations did not move to the 2002 ISDA and of those who eventually did, you will see many large organisations, whom you’d think would know better, amending these grace periods back to the 1992 ISDA standard of 30 days or better still, insisting on sticking with a 1992 ISDA, but upgrading every part of it to the 2002 ISDA except for the {{{{{1}}}|Bankruptcy}} and {{{{{1}}}|Failure to Pay}} grace periods. This is a simply spectacular use of ostensibly limited resources.

Regional bankruptcy variations

The Germanic lands have peculiar ideas when it comes to bankruptcy — particularly as regards banks, so expect to see odd augmentations and tweaks to ISDA’s crack drafting squad™ standard language. Will these make any practical difference? Almost certainly not: it is hard to see any competent authority in Germany, Switzerland or Austria — storeyed nations all, in the long history of banking, after all — not understanding how to resolve a bank without blowing up its netting portfolio. Especially since Basel, where the netting regulations were formulated, is actually in Switzerland.

• Switzerland

The market standard “bankruptcy” definition

The ISDA {{{{{1}}}|bankruptcy}} definition is rarely a source of great controversy (except for the grace period, which gets negotiated only through custom amongst ISDA negotiators because, in its wisdom, ISDA’s crack drafting squad™ thought fit to halve it from 30 days to 15 in the 2002 ISDA.

So you have a sort of pas-de-deux between negotiators where they argue about it for a while before getting tired, being shouted at by their business people, and moving on to something more important to argue about, like {{{{{1}}}|Cross Default}}).

Otherwise, the ISDA {{{{{1}}}|bankruptcy}} clause is a much loved and well-used market standard and you often see it being co-opted into other trading agreements precisely because everyone knows it and no one really argues about it.

1987 ISDA and Automatic Early Termination

Note, for students of history, Automatic Early Termination is (was, right? Oh, come on, guys —) problematic under the 1987 ISDA.