Template:Failure to pay procedure

Failure to pay procedure

Terminating the ISDA Master Agreement on this ground requires:

• Failure: A failure to pay, on day T;
• Notice of failure: The innocent party to give notice of the failure (which, Q.E.D., can be validly given only after close of business on the due date for payment or delivery (until then, the guilty party isn't technically “guilty”) and, by dint of Section 12(a) (Notices), the notice will only be deemed effective on the following business day, T+1.

• Spod’s note: This notice requirement is key from a Cross Default perspective: if you don’t have it, any failure to pay under your ISDA Master Agreement, however innocuous — even an operational oversight — automatically counts as an Event of Default, and gives a different person to the right to close their ISDA Master Agreement with the counterparty because of it defaulted to you, even though (a) the counterparty hasn't defaulted to them, and (b) you have decided not to take any action against the counterparty yourself.

• Grace Period: After the notice of failure is delivered, the grace period must have expired (this depends on the ISDA edition you’re using: one under the 2002 ISDA; and three under the 1992 ISDA, and check also Part 5 of the ISDA Schedule to see if it has been amended specifically for the counterparty.
  

Therefore close of business T+2 (standard 2002 ISDA), T+4 (standard 1992 ISDA)

• Section 6(e) notice: The notice of termination may only be served after close of business at the expiry of the grace period, so therefore the first day on which a termination notice following a failure to pay Event of Default can be effective under an ISDA is T+3 (2002 ISDA) or T+5 1992 ISDA.