Template:Specified indebtedness capsule
A simple and innocuous enough provision. Almost redundant, you’d think — why go to the trouble of defining “borrowed money” as another term? (Answer: because many firms, in their wisdom, will wish to change the definition in the {{{{{1}}}|Schedule}} to include derivatives, other trading exposures, things owed to their affiliates, or even any payment obligations of any kind, and for those people, “{{{{{1}}}|Specified Indebtedness}}” is a (somewhat) less loaded term.)[1].
In any case, what should one make of “borrowed money”? Could it include repo and stock loan obligations under securities financing transactions? Amounts owed to trade creditors? (In each case no, according to Simon Firth - see here)
What of a failure to pay initial margin? Technically this is not a repayment of indebtedness, and if the IM payer is up-to-date on variation margin payments, there may not be any indebtedness at all. Indeed when IM is paid, the IM receiver becomes indebted, for its return, to the payer — so while it certainly comprises a failure to pay when due, the value of the {{{{{1}}}|Specified Indebtedness}} that failure contributes to the {{{{{1}}}|Threshold Amount}} might be nil, or even negative. This, your risk people will say, is why one should widen Specified Indebtedness to include all payments, but that, for a host of reasons you can find here — is whopping great canard a l’orange.
- ↑ By the way, the JC’s personal view is that one should not widen the definition beyond the normal conception of “borrowed money”, and if one is a bank, may wish to narrow it, to exclude deposits. See the article on ISDA’s {{{{{1}}}|Cross Default}} for more information.