Cross acceleration - ISDA Provision: Difference between revisions

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 ===Is “downgrading” to [[cross acceleration]] ''wise'', though?===
 There are two schools of thought:
-*''''Yes''': The sensible, pragmatic, wise, [[noble, fearless and brave]] one you will find in these pages: “''Yes''. [[Cross default]] is misplaced in a modern daily-collateralised {{isda}}. Anything you can do either to restrict its scope, or simply to avoid being dragged into a [[tedious]] argument ''about'' its scope, is worth doing.”
+*'''Yes''': The sensible, pragmatic, wise, [[noble, fearless and brave]] one you will find in these pages: “''Yes''. [[Cross default]] is misplaced in a modern daily-collateralised {{isda}}. Anything you can do either to restrict its scope, or simply to avoid being dragged into a [[tedious]] argument ''about'' its scope, is worth doing.”
 *'''No''': The learned one, from the learned author of that terrible [[FT book about derivatives]]: “All other things being equal, ''no''. One should only soften [[cross default]] reluctantly. Because other counterparts might not be so weak.”
 With respect to my learned friend, his reasoning isn’t massively compelling, as it rather mischaracterises what is going on:
-:''With [[cross acceleration]] the innocent third party actually has to start proceedings<ref>Actually, it doesn’t have to ''sue'' your counterparty; just call its debt in.</ref> against the defaulting counterparty before you can trigger your transaction termination rights ... . The downgrading [of cross default to cross acceleration] therefore affects the timing of your right to terminate, It is no longer automatic but deferred.<ref>I have no idea what the learned author means by “automatic” here: either way the your termination right is ''optional'', not ''automatic'': it is simply contingent on an independent event in either case: in one case the default; in other case the lender’s ''acceleration'' of the default.</ref>
+:''With [[cross acceleration]] the innocent third party actually has to start proceedings<ref>Actually, it doesn’t have to ''sue'' your counterparty; just call its debt in.</ref> against the defaulting counterparty before you can trigger your transaction termination rights ... . The downgrading [of cross-default to cross acceleration] therefore affects the timing of your right to terminate, It is no longer automatic but deferred.<ref>I have no idea what the learned author means by “automatic” here: either way your termination right is ''optional'', not ''automatic'': it is simply contingent on an independent event in either case: in one case the default; in the other, the lender’s ''acceleration'' of the default.</ref>
-:''If the third party is your counterparty’s main relationship [[bank]] it may take some time to review its position<ref>Indeed it may, and probably will. ''But while it is doing that it is not accelerating its claim against your counterparty.'' It is granting its customer, and your counterparty, an indulgence. ''Your'' position is, therefore, not worsened in the meantime.</ref> and may propose a compromise which does not suit you. <ref>You, bear in mind, are the owner of a fully collateralised {{isdama}} which the counterparty has, in the mean time, continued faithfully to perform. If one of your co-creditors has granted an indulgence on outstanding indebtedness — even in return for some other surety or compromise — which avoid that debt being accelerated in full, how can that by itself make your position worse?</ref>
+:''If the third party is your counterparty’s main relationship [[bank]] it may take some time to review its position<ref>Indeed it may, and probably will. ''But while it is doing that it is not accelerating its claim against your counterparty.'' It is granting its customer, and your counterparty, an indulgence. ''Your'' position is, therefore, not worsened in the meantime.</ref> and may propose a compromise which does not suit you. <ref>You, bear in mind, are the owner of a fully collateralised {{isdama}} which the counterparty has, in the meantime, continued faithfully to perform. If one of your co-creditors has granted an indulgence on outstanding indebtedness — even in return for some other surety or compromise — which avoid that debt being accelerated in full, how can that by itself make your position worse?</ref>
 :''[...]
 :''I believe such downgrade requests should only be considered favourably if specific foreseeable circumstances justify them ... or if your counterparty gives written confirmation that cross acceleration applies to all its agreements and will do so in the future. This is because if even one counterparty has {{isdaprov|Cross Default}} it would be in pole position to trigger its termination rights.
-On this last point the learned author is, technically, correct: you are marginally worse off if you have conceded to [[cross acceleration]] and other swap counterparties have not. They can beat you, and your counterparty’s main relationship bank, to the punch, assuming they are cowboys who view a relationship contract like an {{isdama}} as something that it should be a race to close out. Brokers that the [[JC]] knows don’t tend to think that way. They have compliance officers who will quail at the thought of not treating their customers fairly. In any case the fact that this ''could'' happen ''just illustrates how stupid the concept of cross default is''. ''Especially'' in our enlightened age of zero-threshold, [[variation margin|daily margined]] non-exotic swap contracts. ''Especially'' given the extreme conceptual difficulty of even gathering enough information to work out whether you even ''can'' exercise your stupid cross default right. (Just how a third party would ever be able to assess the value of defaulted Specified Indebtedness has never been explained to this old goat).
+On this last point, the learned author is, technically, correct: you are marginally worse off if you have conceded to [[cross acceleration]] and other swap counterparties have not. They can beat you, and your counterparty’s main relationship bank, to the punch, assuming they are cowboys who view a relationship contract like an {{isdama}} as something that it should be a race to close out. Brokers that the [[JC]] knows don’t tend to think that way. They have compliance officers who will quail at the thought of not treating their customers fairly. In any case, the fact that this ''could'' happen ''just illustrates how stupid the concept of cross-default is''. ''Especially'' in our enlightened age of zero-threshold, [[variation margin|daily margined]] non-exotic swap contracts. ''Especially'' given the extreme conceptual difficulty of even gathering enough information to work out whether you even ''can'' exercise your stupid cross-default right. (Just how a third party would ever be able to assess the value of defaulted Specified Indebtedness has never been explained to this old goat).
 This is angel-on-the-head-of-a-pin stuff indeed.