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 it is triggered, {{{{{1}}}|AET}} deems all {{{{{1}}}|Transactions}} under the ISDA Master Agreement to be — or, in the case of a formal insolvency petition, to have just been — immediately terminated. In that last case, some creative warping of lexophysical spacetime is required, which we will discuss at some length and with no small amount of wistful pedantry, in the premium section.
{{{{{1}}}|Automatic Early Termination}} first appeared as a named term in the 1992 ISDA. It did feature, uncredited, in the 1987 ISDA, though in this larval stage 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 posed to the ISDA’s carefully machined close-out and netting mechanics.
The 1987 ISDA unquestionably overdid it: its generally ham-fisted approach to netting is one of many reasons most people have for a long time given it a wide berth.
By 1992, the ’squad had made some key adjustments:
- 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.