Termination Events - ISDA Provision
Termination Events and Events of Default
Termination Events and Events of Default under an ISDA Master Agreement are similar in that when they occur to one party (the Affected Party or Defaulting Party) the other may terminate outstanding trades under the agreement. A crucial difference between them is that events of default may give rise to third-party default rights (where the relevant Cross Default extends to derivatives and trading documents) but generally termination events under an ISDA Master Agreement with another dealer will not.
Termination events are less likely (although sometimes they do) to trigger third-party defaults; however, they often will trigger termination rights that cut across all agreements with one dealer (i.e., Default Under Specified Transaction).
Trick for young players: Force Majeure Event
Note that the 2002 ISDA includes a Force Majeure Event, using language that was already agreed and widely inserted into the 1992 ISDA Schedule prior to its publication. Because this was entered as Section 5(b)(ii), this necessitates some numbering differences between the two versions of the ISDA Master Agreement - a drafting trick for young players to watch out for.
Subsections to Section 5(b) ISDA Master Agreement
- (b) Termination Events
- (i) Illegality
- (ii) Tax Event
- (ii) Force Majeure Event (2002 ISDA Master only)
- (iii) Tax Event Upon Merger
- (iv) Credit Event Upon Merger
- (v) Additional Termination Event
- (c) Event of Default and Illegality
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ISDA Anatomy™
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