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NAV trigger: Difference between revisions
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Amwelladmin (talk | contribs) (Created page with "The right to terminate a {{tag|master agreement}} as a result of the decline in net asset value of a hedge fund counterparty. Often there are three levels of trigger:...") |
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The right to terminate a {{tag|master agreement}} as a result of the decline in [[net asset value]] of a [[hedge fund]] counterparty. Often there are three levels of trigger: Monthly; Quarterly and Annually, and you may find yourself embraced in a tedious argument about whether this should be “rolling” (that is, judged for the period from any day) or “point-to-point” - judged from a defined day to the end of the period following that day. | The right to terminate a {{tag|master agreement}} as a result of the decline in [[net asset value]] of a [[hedge fund]] counterparty. Often there are three levels of trigger: Monthly; Quarterly and Annually, and you may find yourself embraced in a tedious argument about whether this should be “rolling” (that is, judged for the period from any day) or “point-to-point” - judged from a defined day to the end of the period following that day. | ||
In practice an official [[NAV]] is only “cut” once for every “[[liquidity period]]”, and it is hard to see how a credit officer, however enthusiastic, could define an effective Net Asst Value as at any other time. | In practice an official [[NAV]] is only “cut” once for every “[[liquidity period]]”, and it is hard to see how a [[credit officer]], however enthusiastic, could define an effective Net Asst Value as at any other time. On the other hand, [[credit officer]]s don’t usually monitor NAV triggers anyway, so what do they care? | ||
All rather tiresome, and quite unnecessary if you have the right to jack up [[initial margin]] at your discretion. | All rather tiresome, and quite unnecessary if you have the right, as most [[prime broker]]s do, to jack up [[initial margin]] at your discretion<ref>I know, I know, there may be a [[margin lockup]].</ref>. | ||
Even though generally they’re not actively monitored, [[NAV trigger|NAV triggers]] lead to the tedious cottage industry of [[waiver|waiving]] breaches of the NAV trigger. This is because while a prime broker’s credit department doesn't have the bandwidth to be monitoring thousands of NAV triggers, the hdge fund who has granted them will, and if it does suffer a significant drawdown, it won’t like an unexploded {{isdaprov|Additional Termination Event}} sitting on its conscience. It will ask for a waiver. Thanks to the [[no oral modification]] clause in Section {{isdaprov|9(b)}} — which extends to waivers — a [[NAV trigger]] waiver must be given 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 the [[credit department]] as to whose job it is to send out this waiver. | |||
Legal: “You imposed the stupid [[NAV trigger]], so you can damn well send out waivers for it.” | |||
Credit: “Help! Help! It’s a legal agreement! I am not qualified to do this! I cannot opine!” | |||
You’ll never guess where the [[JC]]’s sympathies lie. | |||
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*[[Credit mitigant|Credit mitigants]] | *[[Credit mitigant|Credit mitigants]] | ||
*{{isdaprov|Additional Termination Events}} | *{{isdaprov|Additional Termination Events}} | ||
{{ref}} | |||