Template:M comp disc 2002 ISDA Close-out Amount

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

On the difference between an “Early Termination Amount” and a “Close-out Amount”

Regrettably, the 1992 ISDA features neither an Early Termination Amount nor a Close-out Amount. The 2002 ISDA has both, which looks like rather an indulgence until you realise that they do different things.

A Close-out Amount is the termination value for a single Transaction, or a related group of Transactions that a Non-Defaulting Party or Non-Affected Party calculates while closing out an 2002 ISDA, but it is not the final, overall sum due under the ISDA Master Agreement itself. Each of the determined Transaction Close-out Amounts summed with the various Unpaid Amounts to arrive at the Early Termination Amount, which is the total net sum due under the ISDA Master Agreement after the close-out process. (See Section 6(e)(i) for more on that).

ISDA’s crack drafting squad™ introduced the Close-out Amount into the 2002 ISDA to correct the total trainwreck of a close-out methodology set out in the 1992 ISDA. In the “good old days”, you valued Terminated Transactions were valued according to Market Quotation or Loss and those un-intuitive and — well, flat-out nutso — “First” and “Second” Methods. There is a “Settlement Amount” concept under the 1992 ISDA, but it only really relates to Market Quotation.