Credit Support Default - 1992 ISDA Provision
1992 ISDA Master Agreement
Section 5(a)(iii) in full
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A bit of pedantic flannel found its way into the 2002 ISDA — it captures not just the failure of the Credit Support Document itself, but any security interest granted under it, catering to the legal eagle’s most paranoid fears that a contractual right can have some sort of distinct ontological existence independently from the agreement which gives it breath and enforceable currency in the first place. But otherwise the same.
Before you even put your hand up: no, a Credit Support Annex between the two counterparties is not a Credit Support Document, at least under the English law construct: there it is a “Transaction” under the ISDA Master Agreement. It is somewhat different with a 1994 ISDA CSA (NY law), but even there the Users’ Guide cautions against treating a direct swap counterparty as a “Credit Support Provider” — the Credit Support Provider is meant to be a third party. However we think the effluxion of time and habitual pedantry of our American friends has eroded that presumption: these days a 1994 New York law CSA is routinely listed as a Credit Support Document.
Therefore, tediously — and we think it was avoiding precisely this tediosity that the Users’ Guide had in mind, but, best laid plans and all that — there is an ontological difference between the mechanics of close out when it comes to a failure under a 1994 New York law CSA when compared to non-payment under a 1995 English Law CSA. A 1995 English Law CSA is a Transaction under the ISDA Master Agreement and is not a Credit Support Document. A failure to meet a margin call under a that annex or any of its modern English-law successors is therefore a Failure to Pay or Deliver under Section 5(a)(i) of the actual ISDA Master Agreement; a failure to post under a 1994 New York law CSA is a Section 5(a)(iii) Credit Support Default.
Does this, in practical point of fact, make any difference at all? Is a Section 5(a)(i) Event of Default somehow stronger; more intimately connected to what you are about and therefore subtly preferable; more proper; having greater correctitude; or a matter of better form?
As far as this old goat comprehends the world, it is not.