Failure to Pay or Deliver - ISDA Provision

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2002 ISDA Master Agreement

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ISDA Text: 5(a)(i)

5(a)(i) Failure to Pay or Deliver. Failure by the party to make, when due, any payment under this Agreement or delivery under Section 2(a)(i) or 9(h)(i)(2) or 9(h)(i)(4) required to be made by it if such failure is not remedied on or before the first Local Business Day in the case of any such payment or the first Local Delivery Day in the case of any such delivery after, in each case, notice of such failure is given to the party;

Related agreements and comparisons

Click here for the text of Section 5(a)(i) in the 1992 ISDA
Click to compare this section in the 1992 ISDA and 2002 ISDA.

Resources and Navigation

This provision in the 1992

Resources Wikitext | Nutshell wikitext | 1992 ISDA wikitext | 2002 vs 1992 Showdown | 2006 ISDA Definitions | 2008 ISDA | JC’s ISDA code project
Navigation Preamble | 1(a) (b) (c) | 2(a) (b) (c) (d) | 3(a) (b) (c) (d) (e) (f) (g) | 4(a) (b) (c) (d) (e) | 55(a) Events of Default: 5(a)(i) Failure to Pay or Deliver 5(a)(ii) Breach of Agreement 5(a)(iii) Credit Support Default 5(a)(iv) Misrepresentation 5(a)(v) Default Under Specified Transaction 5(a)(vi) Cross Default 5(a)(vii) Bankruptcy 5(a)(viii) Merger Without Assumption 5(b) Termination Events: 5(b)(i) Illegality 5(b)(ii) Force Majeure Event 5(b)(iii) Tax Event 5(b)(iv) Tax Event Upon Merger 5(b)(v) Credit Event Upon Merger 5(b)(vi) Additional Termination Event (c) (d) (e) | 6(a) (b) (c) (d) (e) (f) | 7 | 8(a) (b) (c) (d) | 9(a) (b) (c) (d) (e) (f) (g) (h) | 10 | 11 | 12(a) (b) | 13(a) (b) (c) (d) | 14 |

Index: Click to expand:

Overview

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The significant change between 1992 ISDA and 2002 ISDA is the restriction of that grace period from three Local Business Days to one. And a bit of convolutional frippery in introducing Local Delivery Days as well.

Compare also Failure to Pay under the 2014 ISDA Credit Derivatives Definitions, which is subtly different given the different purpose that it plays under a CDS.

Summary

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Failure to Pay or Deliver under Section 5(a)(i) of the ISDA Master Agreement: where a party fails to pay or deliver on time and does not remedy before the grace period expires. The grace period for a 2002 ISDA is one Local Business Day; shorter than the three Local Business Days in the 1992 ISDA. This fact alone has kept a number of market counterparties on the 1992 form, nearly thirty years after it was upgraded.

There’s a technical funny due to the American habit of insisting on a pledge-only 1994 New York law CSA and then designating it as a Credit Support Document (against the hopes and dreams of ISDA’s crack drafting squad™ when it drafted the Users’ Guide, but still), and that is a failure to pay under an English law CSA is a Section 5(a)(i) Failure to Pay or Deliver, whereas a failure to pay under a New York Law CSA is a Section 5(a)(iii) Credit Support Default. Doth any difference it maketh? None, so far as we can see.

Funny old world we live in.

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  • The JC’s famous Nutshell summary of this clause
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See also

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References