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| {{isdaanat|6(f)}} | | {{manual|MI|2002|6(f)|Section||medium}} |
| ===A bit of a bish in the {{2002ma}}===
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| Set-off in the {{2002ma}} borrows from the text used to build it into the {{1992ma}} (see below) but still contains a rather [[:Category:Schoolboy error|elementary fluff]]. It imagines a world where the {{isdaprov|Early Termination Amount}} is payable one way, while ''all'' {{isdaprov|Other Amounts}} are only payable the other. Life, as any fule kno, is not always quite that convenient.
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| For example:
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| *{{isdaprov|Payer}} owes Payee an {{ETA}} of 10
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| *{{isdaprov|Payee}} owes {{isdaprov|Payer}} {{isdaprov|Other Amounts}} of 50
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| ----
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| *Net: {{isdaprov|Payee}} owes {{isdaprov|Payer}} 40.
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| But what if there are {{isdaprov|Other Amounts}} payable ''the same way'' as the {{isdaprov|Early Termination Amount}}?
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| *{{isdaprov|Payer}} owes Payee an {{ETA}} of 10
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| *'''{{isdaprov|Payer}} owes Payee {{isdaprov|Other Amounts}} of 40'''
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| *{{isdaprov|Payee}} owes {{isdaprov|Payer}} {{isdaprov|Other Amounts}} of 50
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| ----
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| *Net: {{isdaprov|Payee}} owes {{isdaprov|Payer}} 40.
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| *'''''Whoops: {{isdaprov|Payee}} is still owed 40 by {{isdaprov|Payer}} so is an unsecured creditor '''''
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| Not ideal. But fixable if you’re prepare to add some dramatically anal language:
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| :{{isdaprov|6(f)}} {{isdaprov|Set-Off}}. Any {{isdaprov|Early Termination Amount}} ''(or any other amounts, whether or not arising under this {{isdaprov|Agreement}}, matured, contingent and irrespective of the currency, place of payment of booking of the obligation)” payable to one party (the “'''Payee'''”) by the other party (the “'''Payer'''”), ...
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| ===Cross-[[affiliate]] [[set-off]]===
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| The {{2002ma}}’s {{isdaprov|Set-off}} provision refers to a “Payer” and “Payee”. Since either the “{{isdaprov|Payer}}” or the “{{isdaprov|Payee}}” could be the {{isdaprov|Innocent Party}}<ref>i.e., non-{{isdaprov|Defaulting Party}} or the non-{{isdaprov|Affected Party}}.</ref>, including {{isdaprov|Affiliates}} into the 2002 definition becomes problematic and cumbersome.
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| Generally, market practice is therefore to do the following:
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| *'''Where {{isdaprov|Affiliate}}s ''are'' required''': to use bespoke wording.
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| *'''Where {{isdaprov|Affiliate}}s are ''not'' required''': use the {{2002ma}} standard {{isdaprov|set-off}} wording above.
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| But cross affiliate set-off is a pretty rum affair in any case. Generally set-off requires mutuality of payment, currency, time and counterparty, so setting off between affiliates is liable to challenge anyway (unless you have [[cross-guarantee]] arrangements). And in this modern days of bank recovery and resolution, conjoining claims between entities which are supposed to be siloed and independent isn't really the thing.
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| ===Scope of Set-off===
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| The {{2002ma}} {{isdaprov|set-off}} wording allows set-off following an {{isdaprov|Event of Default}}, {{isdaprov|CEUM}}, or any other {{isdaprov|Termination Event}} where there is one {{isdaprov|Affected Party}} and '''''all''''' outstanding transactions are {{isdaprov|Affected Transaction}}s.
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| Often [[broker]]s will also want to set-off where there is an {{isdaprov|Illegality}} or {{isdaprov|ATE}}. There is no specific reference to all {{isdaprov|Transaction}}s being {{isdaprov|Affected Transaction}}s but this is implied in any set-off provision by its nature:
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| *If only some transactions are {{isdaprov|Affected Transactions}} and so only a portion of outstanding transactions are being terminated then there is an on-going relationship and unilateral set-off is not appropriate.
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| *i.e., if you ''weren't'' terminating all {{isdaprov|Transaction}}s, it would be drastic and counterproductive to a relationship to use a [[set-off]].
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| *As such, the standard [[ISDA]] provision and the {{Bank}} provision are very similar in scope - the {{isdaprov|Tax Event}} and {{isdaprov|Tax Event Upon Merger}} provisions (those not caught by your wording) are more likely to only affect certain transactions and not all Transactions and therefore set-off is not likely to be relevant in such instances.
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| *'''{{isdaprov|Force Majeure}}''': The {{1992ma}} contains no {{isdaprov|Force Majeure}} provision. Commercially, it is not likely that an [[ISDA]] would be closed-out as a result of a {{isdaprov|Termination Event}} as these are generally viewed as non-fault and set-off would generally not be relevant.
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| *'''{{isdaprov|Illegality}}''' does allow either party to terminate but this is limited to all {{isdaprov|Affected Transaction}}s which may not result in a [[close-out]] of the entire [[ISDA]]. In fact, the definition used of Affected Transactions makes it clear that in the cases of Illegality, Tax Event Upon Merger or Tax Event then it will only be transactions affected by the Termination Event that are closed-out. In relation to ATEs and CEUM this will be all Transactions and so set-off is relevant.
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| ==={{1992ma}}===
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| {{1992 isda set-off}}
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| {{sa}}
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| *[[Set-off]] generally.
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| {{ref}}
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