Early Termination - ISDA Provision: Difference between revisions

Early Termination - ISDA Provision (view source)

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 {{tocbuilder|ISDA|2002|6}}
+===How the Close Out Mechanism Works===
+An {{isdaprov|Event of Default}} gives the {{isdaprov|Non-defaulting Party}} a right (but not an obligation) to designate an {{isdaprov|Early Termination Date}} with respect to all outstanding {{isdaprov|Transactions}} on not more than 20 days' notice.
+* Note that {{isdaprov|Automatic Early Termination}} removes that optionality in the event of a counterparty's insolvency and is therefore sub-optimal from the {{isdaprov|Non-defaulting Party}}'s perspective, and thus should only be employed where the consequences of not having it would be worse (e.g. in jurisdictons where [[close-out netting]] may be challenged in an insolvency but not before). (That is to say, this is one provision you should {{isdaprov|not}} insist on just because the other party insists upon it against you).
+* For what this optionality not to terminate means, and how controversial it can be, see the commentary to Section {{isdaprov|2(a)(iii)}}. <br>
+Once all {{isdaprov|Transactions}} are terminated, you move to Section {{isdaprov|6(e)}} which directs how to value the transactions (it depends on who is the Defaulting Party, and whether you have alected {{isdaprov|Loss}} or {{isdaprov|Market Quotation}}, and {{isdaprov|First Method}} or {{isdaprov|Second Method}}. Under the {{2002ma}} it is much easier.
 {{isdaanatomy}}