Market Quotation - 1992 ISDA Provision

From The Jolly Contrarian
Jump to navigation Jump to search

See ISDA Comparison for a comparison between the 1992 ISDA and the 2002 ISDA.

1992 ISDA

Market Quotation” means, with respect to one or more Terminated Transactions and a party making the
determination, an amount determined on the basis of quotations from Reference Market-makers. Each
quotation will be for an amount, if any, that would be paid to such party (expressed as a negative number)
or by such party (expressed as a positive number) in consideration of an agreement between such party (taking
into account any existing Credit Support Document with respect to the obligations of such party) and the
quoting Reference Market-maker to enter into a transaction (the “Replacement Transaction”) that would
have the effect of preserving for such party the economic equivalent of any payment or delivery (whether
the underlying obligation was absolute or contingent and assuming the satisfaction of each applicable
condition precedent) by the parties under Section 2(a)(i) in respect of such Terminated Transaction or group
of Terminated Transactions that would, but for the occurrence of the relevant Early Termination Date, have
been required after that date. For this purpose, Unpaid Amounts in respect of the Terminated Transaction or
group of Terminated Transactions are to be excluded but, without limitation, any payment or delivery that
would, but for the relevant Early Termination Date, have been required (assuming satisfaction of each
applicable condition precedent) after that Early Termination Date is to be included. The Replacement
Transaction would be subject to such documentation as such party and the Reference Market-maker may, in
good faith, agree. The party making the determination (or its agent) will request each Reference
Market-maker to provide its quotation to the extent reasonably practicable as of the same day and time
(without regard to different time zones) on or as soon as reasonably practicable after the relevant Early
Termination Date. The day and time as of which those quotations are to be obtained will be selected in good
faith by the party obliged to make a determination under Section 6(e), and, if each party is so obliged, after
consultation with the other. If more than three quotations are provided, the Market Quotation will be the
arithmetic mean of the quotations, without regard to the quotations having the highest and lowest values. If
exactly three such quotations are provided, the Market Quotation will be the quotation remaining after
disregarding the highest and lowest quotations. For this purpose, if more than one quotation has the same
highest value or lowest value, then one of such quotations shall be disregarded. If fewer than three quotations
are provided, it will be deemed that the Market Quotation in respect of such Terminated Transaction or group
of Terminated Transactions cannot be determined.

Ghastly piece of drafting, isn't it.

2002 ISDA

Note that there is no concept of "Market Quotation" under 2002 ISDA. Instead, the concept of Close-out Amount applies to the valuation of terminated transactions.

Template:Means


Market Quotation in a Nutshell (ISDA edition)

Template:Nutshell ISDA Market Quotation

view template


Commentary

  • Pricing methodology: Note that this quote comprises a portfolio of transactions on identical economic terms (including collateralisation), but between the Non-affected Party and the relevant market maker; i.e. you don't take into account the (almost inevitable) deterioration of the creditworthiness of the Affected Party.
  • Where there are fewer than three quotations: By dint of the definition of Settlement Amount, if there are fewer that three quotations, or the determining party thinks the value provided by Market Quotation is commercially unrealistic, Market Quotation defaults to Loss.

I’m sorry I asked