General Conditions - ISDA Provision
2002 ISDA Master Agreement
Section 2(a) in full
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Section 2 contains the basic nuts and bolts of your obligations under the Transactions you execute. Pay or deliver what you’ve promised to pay or deliver, when you’ve promised to pay it or deliver it, and all will be well.
And then there’s the mighty flawed asset provision of Section 2(a)(iii). This won’t trouble ISDA negotiators on the way in to a swap trading relationship — few people argue understand it enough to argue about it — but if, as it surely well, the great day of judgement should visit upon the financial markets again some time in the future, expect plenty of tasty argument, between highly-paid Queen’s Counsel who have spent exactly none of their careers considering derivative contracts, about what exactly it means.
Of these provisions, the one that generates the most controversy (chiefly among academics and scholars, it must be said) is Section 2(a)(iii). It generates a lot less debate between negotiators, precisely because its legal effect is nuanced, so its terms are more or less inviolate. Thus, should your counterparty take a pen to Section 2(a)(iii), a clinching argument against that inclination is “just don’t go there, girlfriend”.