Calculations - ISDA Provision
2002 ISDA Master Agreement
Section 6(d) in a Nutshell™
Full text of Section 6(d)
Related agreements and comparisons
Content and comparisons
Comparison: Here is a comparison between the 1992 and 2002 versions.
Section 6(d) is to do with working out the termination value of Transactions for which you’ve just designated an Early Termination Date: in the 1992 ISDA using Loss and Market Quotation, and all that Second Method malarkey, and in the 2002 ISDA the much neater and tidier Close-out Amount concept.
Generally, this is good fat-tail paranoia material, so once upon a time parties used to negotiate it heavily. General SME-drain from the negotiation talent pool over the years due to vigorous down-skilling means people are less fussed about it now.
A popular parlour game among those pedants who still insist on using the 1992 ISDA is to laboriously upgrade every inconsistent provision in the 1992 ISDA to the 2002 ISDA standard except the one provision of the 1992 ISDA they always liked — if the pedant is in question is from the Treasury department, that will be the longer grace period in the Failure to Pay; if she is from Credit, it absolutely won’t be.
You might well ask why anyone would be so bloody-minded, but then you might well ask why anybody watches films from the Fast and Furious franchise. Because they can.
Or, possibly, to preserve the slightly more generous grace periods for Failure to Pay and Bankruptcy (in which case, you’d retrofit longer grace periods into the new version, wouldn’t you? But no).
Section 6(d) gives the ISDA ninja a bit of a chicken-and-egg situation on close-out as, having served your Section 6(a) notice designating a point in the near future as the Early Termination Date, you must now ascertain termination values for the Terminated Transactions as of that date, before that date, but you can’t really work out their mark-to-market values at any time before that date, not being able to see into the future or anything.
Anyway, that’s a conundrum for your trading people (and in-house metaphysicians) to deal with and it need not trouble we eagles of the law. For our purposes, the trading and risk people need to come up with Close-out Amounts for all outstanding Transactions. Once they have done that you are ready for your Section 6(e) notice.
- Section 6(e) notice
- Or, in fairness, are forced to by some other pedant further up their chain, or a general institutional disposition towards pedantry.
- Three days in the 1992 ISDA versus one in the 2002 ISDA.
- Thirty days in the 1992 ISDA versus 15 in the 2002 ISDA.
- Apologies if we are underestimating your faculties here by the way. But if you are clairvoyant, why did you trade with this counterparty in the first place? Huh?
- Or un-labelled equivalent for 1992 ISDAs.