Template:M summ 2002 ISDA 2(a)

Section 2 contains the basic nuts and bolts of your obligations under the Transactions you execute. Pay or deliver what you’ve promised to pay or deliver, when you’ve promised to pay it or deliver it, and all will be well. Though it doesn’t say so, the date on which you are obliged to pay or deliver it is the “Scheduled Settlement Date”, a definition which then shows up only in Section 2(b) (relating to the time by which you must have notified any change of account details) and then in the tax-related Termination Events (Tax Event and Tax Event Upon Merger) which, yes, makes us wonder why they bothered to make this definition at all.

And then there’s the mighty flawed asset provision of Section 2(a)(iii). This won’t trouble ISDA negotiators on the way into a swap trading relationship — few enough people understand it sufficiently well to argue about it — but if, as it surely will, the great day of judgement should visit upon the financial markets again some time in the future, expect plenty of tasty argument, between highly-paid Queen’s Counsel who have spent exactly none of their careers considering derivative contracts, about what it means.

We have some thoughts on that topic, should you be interested, at Section 2(a)(iii).