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===“... or would occur as a result of entering into this agreement”=== | ===“... or would occur as a result of entering into this agreement”=== | ||
A curious confection, you might think: ''what sort of [[event of default]] could a fellow trigger merely by entering into an {{isdama}} with me?'' Well, remember the [[ISDA]]’s lineage. It was crafted, before the alliance of men and elves, by the [[Children of the Forest]]. They were a species of pre-derivative, banking people. It is possible they had in mind the sort of [[restrictive covenant]]s a banker might demand of a borrower with a look of softness about its credit standing: perhaps a promise not to create indebtedness | A curious confection, you might think: ''what sort of [[event of default]] could a fellow trigger merely by entering into an {{isdama}} with me?'' Well, remember the [[ISDA]]’s lineage. It was crafted, before the alliance of men and elves, by the [[Children of the Forest]]. They were a species of pre-derivative, banking people. It is possible they had in mind the sort of [[restrictive covenant]]s a banker might demand of a borrower with a look of softness about its credit standing: perhaps a promise not to create material [[indebtedness]] to another lender, though in these enlightened times that would be a great constriction indeed on a fledgling enterprise chasing the world of opportunity that lies beyond its door. | ||
So, does a swap [[mark-to-market]] [[exposure]] count as [[indebtedness]]? Many will recognise this [[tedious]] question as one addressed at great length when contemplating a {{isdaprov|Cross Default}}: Suffice, here, to say that an ISDA isn’t “[[borrowed money]]”<ref>Unless your credit team decided to define it as such, of course. It does happen.</ref> as such, but a material swap exposure would have the same credit characteristics as indebtedness. But in these days of compulsory [[variation margin]] you wouldn’t expect one’s [[mark-to-market]] [[exposure]] to ''be'' material, unless something truly cataclysmic was going on intra-day in the markets. | |||
Much more likely is a [[negative pledge]], and while an unsecured, [[Title transfer|title-transfer]], [[close-out]] netted ISDA might not offend one of those, a [[Pledge GMSLA]] might, and a [[prime brokerage agreement]] may well do. | |||
But still, nonetheless, see above: if it does, and your counterparty has fibbed about it, all you can do is get out your tiny violin. |