Failure to Pay or Deliver - ISDA Provision

From The Jolly Contrarian
Jump to navigation Jump to search
2002 ISDA Master Agreement

A Jolly Contrarian owner’s manual™

5(a)(i) in a Nutshell

The JC’s Nutshell summaries are moving to the subscription-only ninja tier. For the cost of ½ a weekly 🍺 you can get them here. Sign up at Substack.

5(a)(i) in all its glory

5(a)(i) Failure to Pay or Deliver. Failure by the party to make, when due, any payment under this Agreement or delivery under Section 2(a)(i) or 9(h)(i)(2) or 9(h)(i)(4) required to be made by it if such failure is not remedied on or before the first Local Business Day in the case of any such payment or the first Local Delivery Day in the case of any such delivery after, in each case, notice of such failure is given to the party;

Related agreements and comparisons

Click here for the text of Section 5(a)(i) in the 1992 ISDA
Click to compare this section in the 1992 ISDA and 2002 ISDA.

Resources and Navigation

This provision in the 1992

Resources Wikitext | Nutshell wikitext | 1992 ISDA wikitext | 2002 vs 1992 Showdown | 2006 ISDA Definitions | 2008 ISDA | JC’s ISDA code project
Navigation Preamble | 1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9 | 10 | 11 | 12 | 13 | 14
Events of Default: 5(a)(i) Failure to Pay or Deliver5(a)(ii) Breach of Agreement5(a)(iii) Credit Support Default5(a)(iv) Misrepresentation5(a)(v) Default Under Specified Transaction5(a)(vi) Cross Default5(a)(vii) Bankruptcy5(a)(viii) Merger without Assumption
Termination Events: 5(b)(i) Illegality5(b)(ii) Force Majeure Event5(b)(iii) Tax Event5(b)(iv) Tax Event Upon Merger5(b)(v) Credit Event Upon Merger5(b)(vi) Additional Termination Event

Index: Click to expand:



The significant change between 1992 ISDA and 2002 ISDA is the restriction of that grace period from three Local Business Days to one. And a bit of convolutional frippery in introducing Local Delivery Days as well.

Compare also Failure to Pay under the 2014 ISDA Credit Derivatives Definitions, which is subtly different given the different purpose that it plays under a CDS.



Failure to Pay under Section 5(a)(i) of the ISDA Master Agreement: where a party fails to pay or deliver on time and does not remedy before the grace period expires. The grace period for a 2002 ISDA is one Local Business Day; shorter than the three Local Business Days in the 1992 ISDA. This fact alone has kept a number of market counterparties on the 1992 form, nearly thirty years after it was upgraded.


There’s a technical funny due to the American habit of insisting on a pledge-only 1994 New York law CSA and then designating it as a Credit Support Document (against the hopes and dreams of ISDA’s crack drafting squad™ when it drafted the Users’ Guide, but still), and that is a failure to pay under an English law CSA is a Section 5(a)(i) Failure to Pay or Deliver, whereas a failure to pay under a New York Law CSA is a Section 5(a)(iii) Credit Support Default. Doth any difference it maketh? None, so far as we can see.

Funny old world we live in.

Payments satisfied other ways

One from the tricks for young players department.

Say you have some awkward client who insists on a right to meet a credit support payments some other way? For example, by terminating other in-the-money Transactions, in lieu of ponying up cold, hard, folding spondoolies. Does this convert a hardcore payment obligation into something more vapid, vague and fluffy? Something that the failure to effectively carry out doesn’t quite qualify as a Failure to Pay or Deliver?

“Look, I know I didn’t meet my variation margin, but, Sir, your honour, I didn’t have to actually pay it. I was allowed to terminate something else in lieu. So while I could have sorted this all out with a payment — and I think we can all agree that might have been the most sensible thing to do — and I was obliged to sort this out somehow, I wasn’t obliged to sort it out with a payment. Sir. Your honour.”

Why might this matter? Isn’t it an Event of Default either way? What difference does it make whether it was a Breach of Agreement or a Failure to Pay or Deliver?

I can already see hands shooting up from the ISDA ninjas in the front row. And yes, my little tricoteuses, you are right. Grace periods. That is the difference. A Failure to Pay or Deliver has a grace period of one day.[1] A Breach of Agreement has a thirty day grace period. Even the hyenas will have given up and gone home by then.

Premium content

Here the free bit runs out. Subscribers click 👉 here. New readers sign up 👉 here and, for ½ a weekly 🍺 go full ninja about all these juicy topics 👇

See also



  1. Three if you are one of those antediluvian types on a 1992 ISDA.