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| ===[[Guarantees]] under the {{isdama}}: why {{isdaprov|Transaction}}-specific {{isdaprov|guarantee}}s don't work=== | | ===[[Guarantees]] under the {{isdama}}: why {{isdaprov|Transaction}}-specific {{isdaprov|guarantee}}s don't work=== |
| {{isdaguaranteewarning}} | | {{isdaguaranteewarning}} |
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| Should a client request a transaction-specific [[parental guarantee]] under an {{isdama}} instead of the usual [[all obligations guarantee|“all obligations” guarantee]] of all the counterparty’s obligations under the {{isdama}}, hit the alarm button.
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| You should *never* agree to the {{isdaprov|guarantee}} of individual {{isdaprov|Transaction}}s (nor accept a [[letter of credit]] with respect to individual {{isdaprov|Transactions}}) under an {{isdama}}. If you do, because of the way {{isdama}}s are closed out under Section {{isdaprov|6(e)}} — or rather, ''aren't'' closed out, you might find that just when you want your guarantee to pay, the {{isdaprov|Transaction}} it is guaranteeing isn’t there anymore:
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| On a close-out, each {{isdaprov|Transaction}} is terminated, the individual close-out amounts are determined, they’re aggregated up to a single net sum (i.e. negative exposures are netted off against positive ones) and a single {{isdaprov|Close Out Amount}} is payable with respect to ''all terminated {{isdaprov|Transactions}}'' under {{isdaprov|6(e)}} ({{isdaprov|Payments on Early Termination}}) of the {{isdama}}.<ref>The {{isdama}} itself is never actually terminated, but carries impotently on in undead twilight, roaming the badlands like [[Nosferatu]] or the [[Flying Dutchman]], unloved, unredeemed, until the [[end of days]].</ref>
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| *That is to say, it is *not* payable under the {{isdaprov|Transaction}} at all - it’s payable under the {{isdama}} itself.
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| *Therefore, if the [[guarantee]] relates to the single {{isdaprov|Transaction}}, at the point you wish to rely on it (i.e., upon the party’s default), the Transaction has gone, with no payment required. Vanished, like tears in the rain.
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| {{ref}} | | {{ref}} |