NAV trigger: Difference between revisions

[[Prime broker]]s hold [[initial margin]] to protect against the first, control the second in any weather, and one would expect the third to result in overall proportionate de-risking anyway. <ref>Not always precisely, of course: thanks to Mr. Woodford for reminding us all that a manager handling redemptions will tend to nix [[liquid]] positions first. </ref> In any case, the benefit to a second order derivative close-out right is that it might allow you to get ahead of the game. If I know the default is coming (because [[NAV trigger]], right?) why wait until a payment is due to see if I get hosed?  

Because, in this age of high-frequency trading, multiple payments are due every day, and even if one isn’t, in many cases you can force one by raising [[initial margin]]<ref>Assuming you have under-cooked your [[IM]] calculations in the first place, that is. [[IM]] is designed to tide you over between payment periods after all. </ref>. All told, an ''actual'' [[failure to pay]] is deterministic. There is no argument. A NAV trigger breach — not so much.  

All rather tiresome, and quite unnecessary if you have the right, as most [[prime broker]]s do, to hike up [[initial margin]] at your discretion<ref>I know, I know, there may be a [[margin lockup]]. That’s really the best place for the [[NAV trigger]], as you may come to agree if you read on.</ref>.

Yet, thanks to the [[no oral modification]] clause in Section {{isdaprov|9(b)}} — which extends to waivers — you ''must'' waive a [[NAV trigger]] in writing<ref>This has been recently confirmed in {{casenote|Rock Advertising Limited|MWB Business Exchange Centres Limited}}.</ref>. This then leads to an argument between [[legal]] and [[credit ]] as to ''whose job it is to send out this waiver''. Honestly, this is such fun.