NAV trigger: Difference between revisions

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 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.
+Even though generally they’re not actively monitored, [[NAV trigger|NAV triggers]] lead to the tedious cottage industry of [[waiver|waiving]] their breach. This is because while a [[prime broker]]’s credit risk department won’t have the inclination (or bandwidth) to monitoring the thousands of NAV triggers it has buried in its corpus of legal documentation, each [[hedge fund]] who has granted one will and, if<ref>''When''.</ref> it suffers a significant drawdown, won’t like an unexploded {{isdaprov|Additional Termination Event}} sitting on its conscience.It will ask for a waiver. If it has clever lawyers, it will explain that it has heightened [[cross default]] risk as a result. It may insist on one, even though you would think it ought to be in no position to be insisting anything.
+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.”
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 You’ll never guess where the [[JC]]’s sympathies lie.
+===Practical solution===
+Presuming you have reserved the right, as any sensible [[prime broker]] will, to increase your [[initial margin]] at any time, there is a way out of this, which ought to work perfectly well, but which your [[credit department]] will not like. That is to relegate the [[NAV trigger]]s to any [[margin lockup]] you have agreed.
+This means the [[NAV trigger]] is no longer, of itself, a {{isdaprov|Termination Event}} under the {{isdama}}. All it entitles you to do is raise [[initial margin]]. Calling for more IM will achieve one of two things:
+*The [[counterparty]] will deliver it, in which case your credit position, if precarious, can be sated;
+*The [[counterparty]] can fail to deliver it, in which case you have a {{isdaprov|Failure to Pay or Deliver}}, being a much more robust {{isdaprov|Event of Default}} to take action.
+Thus, it doesn’t trouble fastidious types who fuss about [[cross default]] or [[DUST]], and the consequences of the trigger are in any case less apocalyptic for the fund, and less demanding of a waiver.
+“But what if I don’t have a margin lockup]]?”, your credit will wail.
 {{Seealso}}