Cross default: Difference between revisions

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→‎{{isdaprov|Cross default}} in the {{isdama}}

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 ==={{isdaprov|Cross default}} in the {{isdama}}===
-In their infinite wisdom (or jest), the framers of the [[1987 ISDA Interest Rate and Currency Exchange Agreement]] ([[cro-magnon man]] to the {{2002ma}}’s metropolitan hipster) thought it might be wise to include a cross default provision, perhaps because, in those heady days, crfedit support annexes weren’t run-of-the-mill.
+In their infinite wisdom (or jest), the framers of the [[1987 ISDA Interest Rate and Currency Exchange Agreement]] ([[cro-magnon man]] to the {{2002ma}}’s metropolitan hipster) thought it wise to include a cross default, perhaps because, in those heady days, [[Credit Support Annex|credit support annexes]] weren’t run-of-the-mill, and may not even have been invented.
-[[Mediocre lawyer|Lawyers]] being the creatures of habit they are, especially when sequestered into an [[ISDA working group]], never thought to take it out, and even our artisanal coffee swilling {{2002ma}} boasts a tedious Cross Default provision, an embarrassing relic of its agricultural ancestry.
+Subsequent generations of derivative [[Mediocre lawyer|Lawyers]], being the creatures of habit they are — especially when sequestered into an [[ISDA working group]] — never thought to take it out, and even our artisanal coffee swilling {{2002ma}} boasts a tedious {{isdaprov|Cross Default}} provision, an embarrassing relic of its agricultural ancestry. It’s like that tattoo you got when you were a drunk 19 year old. Yes, you know the one.
-But, for a [[master trading agreement]], it’s a nonsense.
+You see the thing is, for a [[master trading agreement]], [[cross default]] is a complete nonsense.
-A counterparty to an {{isdama}}, particularly one with a zero-threshold daily {{isdaprov|CSA}} and many {{isdaprov|transaction}}s under it, suffers none of those weaknesses.
+A counterparty to an {{isdama}}, particularly one with a zero-threshold daily {{isdaprov|CSA}} and many {{isdaprov|transaction}}s under it, suffers none of those weaknesses it is designed for:
 *'''Little indebtedness''': An {{isdama}} is not a contract of [[indebtedness]], and any [[mark-to-market]] exposure that may ''resemble'' indebtedness is zeroed daily by means of a collateral call;
 *'''Frequent payments''': particularly where there are many transactions, or where the net mark-to-market position is shifting, there are payment obligations flowing every day, ''and if there are not that means there is no net indebtedness at all to the  counterparty''.
-So the two main reasons for inserting a cross default aren't really there in an a collateralised trading agreement. For a bank, there are key treasury concerns about giving away a cross default, because it can affect our liquidity buffer calculations, but credit to date has not been persuaded to worry about these.
+Additionally, regulated [[credit institution]]s have (or should have) enormous concerns about giving away cross default, because it can affect their liquidity buffer calculations.
-DUST, on the other hand, is between just the two parties, and here any direct failure to us under any transaction, whether or not under the ISDA should allow us to close out the ISDA (just as a payment default under the ISDA itself would). The better your dust, the less need, in fact, you have for a cross default. Dust doesn’t need to cover indebtedness because it’s covered already by default, but you’re right – it’s slightly odd that indebtedness between parties is excluded from specified transactions – but there you have it.
 ==Introduction==