Template:Isda Automatic Early Termination comp
Redlines
- 1987 ⇒ 1992: Redline of the ’92 vs. the ’87: comparison (and in reverse)
- 1992 ⇒ 2002: Redline of the ’02 vs. the ’92: comparison (and in reverse)
- 1987 ⇒ 2002: Redline of the ’92 vs. the ’87: comparison (and in reverse)
Discussion
The ISDA’s {{{{{1}}}|Automatic Early Termination}} provision — colloquially “{{{{{1}}}|AET}}”, but not to be confused with “{{{{{1}}}|ATE}}” or “{{{{{1}}}|ETA}}” — is triggered — sorry for the passive, but there is no way around it — by certain {{{{{1}}}|Bankruptcy}} {{{{{1}}}|Events of Default}}. Not all of them, though. If one of those events happen, {{{{{1}}}|AET}} deems all {{{{{1}}}|Transactions}} under the ISDA Master Agreement to be — or, in the case of a formal insolvency petition, have been — immediately terminated. In that last case, some creative warping of lexophysical spacetime is required, which we will discuss below.
{{{{{1}}}|Automatic Early Termination}} first appears as a named term in the 1992 ISDA. It did feature in the 1987 ISDA, though it was a blunt instrument indeed: it was mandatory and applied against every party in the case of any Bankruptcy event, regardless of the risk that party’s insolvency regime would jeopardise the ISDA Master Agreement’s carefully machined close-out and netting mechanics. This was unquestionably overkill, and yet another reason to steer clear of the 1987 ISDA.
In the 1992 ISDA, the ’squad had made some key adjustments to {{{{{1}}}|AET}}:
- They made it an option you could elect in the Schedule, and typically only would elect against a counterparty in one of the few jurisdictions where the netting opinion required it.
- They narrowed down its scope, by excluding limbs (2) (cashflow insolvency) and (7) (contractual sequestration) of the {{{{{1}}}|Bankruptcy}} definition from its ambit.
- They also officially labelled it “{{{{{1}}}|Automatic Early Termination}}”.
Thereafter they did not change the language of {{{{{1}}}|6(a)}} between the 1992 ISDA and the 2002 ISDA.