Automatic Early Termination - ISDA Provision: Difference between revisions

{{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.

{{automaticearlytermination}}

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.