Default Under Specified Transaction - ISDA Provision: Difference between revisions

Default Under Specified Transaction - ISDA Provision (view source)

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 This is less drastic than the corresponding {{isdaprov|Cross Default}} provision, which imports all the {{isdaprov|Events of Default}} from all {{isdaprov|Specified Indebtedness}} into the present one<ref>I should say I am grateful to my correspondent Nick for his helpful suggestion here. I don’t get many correspondents so it is extra special when one writes in with actual useful feedback. Thanks Nick! (To my other correspondents: hi, nice to hear from you too, but no I have not been in a car accident recently.) </ref>, even if the counterparty to the defaulted contract has itself waived its rights to exercise.
 ===Drafting oddities===
-====Payment acceleration versus delivery acceleration====
+====Payment acceleration versus delivery acceleration — {{gmslaprov|mini close-out}}====
-Upon a payment default under {{isdaprov|5(a)(v)}}(1), only that particular transaction must be accelerated (it doesn’t require full close out of the relevant [[Master agreement|Master Agreement]]. But a delivery default under {{isdaprov|5(a)(v)}}(3), is only triggered if ''the whole Master Agreement is closed out''.
+Upon a payment default under {{isdaprov|5(a)(v)}}(1), only that particular [[transaction]] must be accelerated (it doesn’t require full close out of the relevant [[Master agreement|Master Agreement]]. But a ''delivery'' default under {{isdaprov|5(a)(v)}}(3), is only triggered if ''the '''whole''' Master Agreement is closed out''.
-Why would that be? This is to stop the [[mini-closeout]] of a single transaction under a {{gmsla}} — which is often a function of market illiquidity (the asset to be delivered isn’t available) and isn’t necessarily indicative of credit deterioration — giving rise to a DUST under the ISDA. Clearly this situation would never apply to a simple cash payment. If the ''whole'' {{gmsla}} is closed out as a result of a delivery fail, you clearly are in a credit-stress situation.
+Why would that be? Oh! Yes, [[Stock loan ninja]] at the back, with your hand up!
+:'''''[[Stock loan ninja]]''' (''for it is he'')'': Sir! Sir! Please sir, is this to stop the [[mini-closeout]] of a single {{gmslaprov|Loan}} under a {{gmsla}}?
+:'''''The [[JC]]''' (beaming inscrutably)'': Yeeeees — Go on — ?
+:'''''SLN''''': Sir, please sir, settlement failures under a [[stock loan]] are often a function of market illiquidity (the asset to be delivered isn’t available) and aren’t necessarily indicative of credit deterioration, sir, so should not necessarily trigger a [[DUST]] under the [[ISDA]]. But this situation would never apply to a simple cash payment. On the other hand, if the ''whole'' {{gmsla}} is closed out as a result of a delivery fail, you clearly are in a credit-stress situation.
+:'''''[[JC]]''''': Excellent!
 ====Final payments====