Template:Isda 6(f) summ

One does not exercise a set-off right willy nilly. Unless one is, mutually, settlement netting (where on a given day I owe you a sum, you owe me a sum, and we agree to settle by one of us paying the other the difference) set-off is a drastic remedy which will be seen as enemy action. You would not do it, without agreement, to any client you expected to keep. So, generally, use set-off as a remedy it only arises following an event of default.

A bit of a bish in the 2002 ISDA

Set-off in the 2002 ISDA borrows from the text used to build it into the 1992 ISDA but still contains a rather elementary fluff-up: it imagines a world like our own, but where the {{{{{1}}}|Early Termination Amount}} is payable one way, while all {{{{{1}}}|Other Amounts}} are only payable the other. Life, as any fule kno, is not always quite that convenient.

For example:

{{{{{1}}}|Payer}} owes Payee an Early Termination Amount of 10 {{{{{1}}}|Payee}} owes {{{{{1}}}|Payer}} {{{{{1}}}|Other Amounts}} of 50 Net: {{{{{1}}}|Payee}} owes {{{{{1}}}|Payer}} 40.

But what if there are {{{{{1}}}|Other Amounts}} payable the same way as the {{{{{1}}}|Early Termination Amount}}?

{{{{{1}}}|Payer}} owes Payee an Early Termination Amount of 10 {{{{{1}}}|Payer}} owes Payee {{{{{1}}}|Other Amounts}} of 40 {{{{{1}}}|Payee}} owes {{{{{1}}}|Payer}} {{{{{1}}}|Other Amounts}} of 50 Net: {{{{{1}}}|Payee}} owes {{{{{1}}}|Payer}} 40. Whoops: {{{{{1}}}|Payee}} is still owed 40 by {{{{{1}}}|Payer}} so is an unsecured creditor '

Not ideal. But fixable if you’re prepared to add some dramatically anal language:

{{{{{1}}}|6(f)}} {{{{{1}}}|Set-Off}}. Any {{{{{1}}}|Early Termination Amount}} (or any other amounts, whether or not arising under this {{{{{1}}}|Agreement}}, matured, contingent and irrespective of the currency, place of payment of booking of the obligation)” payable to one party (the “Payee”) by the other party (the “Payer”), ...