Claims for Damages and Compensation for Benefits Received - DRV-F Provision

DRV for Derivatives and Futures Anatomy™ This is an informal, non-binding and, by the looks, not massively idiomatic translation of the Deutscher Rahmenvertrag für Finanztermingeschäfte. So treat it, and the JC's summary of and uninformed musings about it, with even more caution than normal. →Go uptown In a Nutshell™ Clause 8: 8 Claims for Damages and Compensation for Benefits Received 8(1) The non-defaulting party (the Party Entitled to Damages) may claim damages on the basis of the cost to it of replacement transactions effected promptly. To calculate this it may seek quotes and may consider its own costs but in any case it has to take into account all Transactions including those where it made a gain upon Termination. 8(2) If the Party Entitled to Damages obtains an overall net financial benefit from terminating Transactions, subject to Clause 9(2) and 12(4)) it will owe the other party that benefit, calculated the same way as it calculated its own damages under 8(1), as long as it is not more than what the other party actually lost as a result of termination. view template DRV for Derivatives and Futures full text of Clause 8: 8 Claims for Damages and Compensation for Benefits Received 8(1) In the event of Termination, the party giving notice or the solvent party, as the case may be, (hereinafter called Party Entitled to Damages) shall be entitled to claim damages. Damages shall be determined on the basis of replacement transactions, to be effected without undue delay, which provide the Party Entitled to Damages with all payments and the performance of all other obligations to which it would have been entitled had the Agreement been properly performed. Such party shall be entitled to enter into contracts which, in its opinion, are suitable for this purpose. If it refrains from entering into such substitute transactions, it may base the calculation of damages on that amount which it would have needed to pay for such replacement transactions on the basis of interest rates, forward rates, exchange rates, market prices, indices and any other calculation basis, as well as costs and expenses, at the time of giving notice or upon becoming aware of the insolvency, as the case may be. Damages shall be calculated by taking into account all Transactions; any financial benefit arising from the Termination of Transactions (including those in respect of which the Party Entitled to Damages has already received all payments and performance of all other obligations by the other party) shall be taken into account as a reduction of damages otherwise determined. 8(2) If the Party Entitled to Damages obtains an overall financial benefit from the Termination of Transactions, it shall owe the other party, subject to Clause 9 sub-Clause (2) and, where agreed, Clause 12 sub-Clause (4), a sum corresponding to the amount of such benefit, but not exceeding the amount of damages incurred by the other party. When calculating such financial benefit, the principles of sub-Clause (1) as to the calculation of damages shall apply mutatis mutandis. view template DRV-F · (wikitext) · (nutshell wikitext) Navigation: Table of contents | 1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9 | 10 | 11 | 12 (being the Elections) Tell me more Sign up for our newsletter — or just get in touch: for ½ a weekly 🍺 you get to consult JC. Ask about it here.

This nutshell is very nascent, ok, and I did it in a rush and I don't honestly understand what on Earth the Bankenverband’s crack drafting squad™ were driving at here, if it isn't the innocent party can close out, get market quotes for replacement transactions, and can net them down, and if it was out of the money, it has to pay the balance to the defaulting party. It seems far more straightforward than this tortured, translated, mangled prose suggests.

There’s an interesting commentary on the potentially non-zero-sum gaminess of finance here, in that the amount I am out of the money could be still more than the amount by which you are in the money on the same transactions. Unless you are valuing your won exposure using a different model to me, or maybe you are naturally hedged to currencies on some transactions which I am not — maybe you’re a German bank and I’m in Switzerland or something (help me I am reaching here) — it is odd to think the two values would not be the same.