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| {{isdaanat|6(a)}} | | {{nman|isda|2002|Automatic Early Termination}} |
| {{isdaprov|Automatic Early Termination}} is an odd and misunderstood concept which exists in Section {{isdaprov|6(a)}} {{isdaprov|Right to Terminate Following Event of Default}} of the {{isdama}}. As is so much in the {{isdama}}, it’s all about '''[[Netting]]'''. Where a jurisdiction suspends terms of contracts in a period of formal insolvency, the idea is to have the ISDA break before that suspension kicks in — so close-out netting works.
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| {{isdaprov|AET}} is thus only triggered by ''certain'' events under the {{isdaprov|Bankruptcy}} [[Events of Default - ISDA Provision|event of default]] — formal bankruptcy procedures — and not by economic events that tend to indicate insolvency (such as an inability to pay debts as they fall due, [[technical insolvency]] or the exercise of security. Nor does it apply to other Events of Default.
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| {{automaticearlytermination}}
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| ===Typical, if [[tedious]], mostly harmless drafting tweaks===
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| Even for the {{isdaprov|Non-Defaulting Party}}, [[AET]] is a necessary evil. It leaves the {{isdaprov|Non-Defaulting Party}} at risk of being un-hedged on a portfolio of {{isdaprov|Transaction}}s that automatically terminated effective as of a {{isdaprov|Bankruptcy}} event without the [[NDP]] knowing that the {{isdaprov|Bankruptcy}} event had happened<ref>Unless [[credit department]] is constantly monitoring the regulatory newswires of all AET counterparties to check whether they go bankrupt each day, and they won’t be.</ref>. The [[NDP]] may want to capture the [[market risk]] between the {{isdaprov|Bankruptcy}} event and the date on which they ''[[Constructive knowledge|should have]]'' known about it, and factor that into the {{isdaprov|Close-out Amount}}. If they do, expect to see language like the below.
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| If you are an [[AET]] counterparty, your [[credit officer]] may bridle at the sight of this, but you can reassure her that at any point where this language comes into play she will be wandering around outside in a daze clutching an [[Iron Mountain]] box full of gonks, comedy pencils and deal tomb-stones, and contemplating a career reboot as a maths teacher, so she shouldn’t really care anyway.
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| :'''''Adjustment for {{isdaprov|Automatic Early Termination}}''': If an {{isdaprov|Early Termination Date}} occurs following an {{isdaprov|Automatic Early Termination}} event, the {{isdaprov|Early Termination Amount}} will adjusted to reflect movements in rates or prices between that {{isdaprov|Early Termination Date}} and the date on which the Non Defaulting Party should [[Constructive knowledge|reasonably have become aware]] of the occurrence of the {{isdaprov|Automatic Early Termination}}.''
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| ==={{t|Switzerland}}===
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| {{t|Switzerland}} is — isn’t it always? — different, and a good place to go right now would be the [[Swiss bankruptcy language]] page. Switzerland itself is also a good place to go, especially in the skiing season. The [[JC]] loves Wengen.
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| ===[[AET]] under the {{1987ma}}===
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| Note the somewhat difficult position for {{tag|AET}} under the {{1987ma}} - a fuller discussion at that article - which was part of the reason for the move to the {{1992ma}} in the first place.
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| {{sa}}
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| *{{isdaprov|Right to Terminate Following Event of Default}}
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| *[[Swiss bankruptcy language]]
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| {{ref}}
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