Template:Failure to pay procedure: Difference between revisions

So, to close out following a {{isdaprov|Failure to Pay or Deliver}}, you will need:

A {{{{{1}}}|Failure to Pay or Deliver}}, by the {{{{{1}}}|Defaulting Party}} to make a payment or delivery when due on day '''T'''. This is an {{{{{1}}}|Event of Default}} under Section {{{{{1}}}|5(a)(i)}}.  

The {{{{{1}}}|Non-defaulting Party}} must give the {{{{{1}}}|Defaulting Party}} notice of the failure. This is ''not'' a Section {{{{{1}}}|6(a)}} notice — calm, down, we will get to that in good time — but a Section 5(a)(i) notice of failure to pay or deliver. The sainted {{isdama}} does not directly prescribe the format for this notice, but Section {{{{{1}}}|12}} cautions that it may not be by {{isdaprov|e-mail}} or {{{{{1}}}|electronic messaging system}} or (if you have a {{1992ma}}, at any rate), by [[fax]]. The proper form is to have it hand-delivered by someone prepared to swear an affidavit as to when and where they delivered it to the {{isdaprov|Defaulting Party}}..<ref>Yes, it’s true: in ISDA’s alternative universe, [[Greenclose v National Westminster Bank plc|e-mail and electronic messaging systems are different things]].</ref>  

Thanks to Section {{{{{1}}}|12(a)}} ({{{{{1}}}|Notices}}), the Section {{{{{1}}}|5(a)(i)}} notice will only be effective on the following {{{{{1}}}|Local Business Day}}: i.e.,  '''T+1'''. <ref>'''Spod’s note''': This notice requirement is key from a [[cross default]] perspective (if you have been indelicate enough to widen the scope of your [[cross default]] to include [[derivatives]], that is): if you don’t have it, ''any'' failure to pay under your {{isdama}}, however innocuous — even an operational oversight — automatically counts as an Event of Default, and gives a different person to the right to close ''their'' {{isdama}} with your Defaulting Party because of it defaulted to ''you'', even though (a) the Defaulting Party ''hasn’t'' defaulted to ''them'', and (b) you have decided not to take any action against the Defaulting Party yourself.</ref>  

At this point you have a {{{{{1}}}|Potential Event of Default}}, but not an ''actual'' one.  

Let us imagine for a moment you have indeed waited the necessary time.

So, at some point in the next twenty days<ref name="20days"/> there will be a final reckoning and one Party will pay the other the {{isdaprov|Early Termination Amount}}.<ref>By a striking oversight, not actually so named in the {{1992ma}}.</ref>But we have a ways to go before we even know what that amount will be. But observe: the payment date is now locked in. Time to get your skates on and start closing out {{{{{1}}}|Transactions}}.

Now armed with our crystalised {{{{{1}}}|Failure to Pay or Deliver}} {{{{{1}}}|Event of Default}} and with an {{{{{1}}}|Early Termination Date}} to target, we go directly to Section {{{{{1}}}|6(e)}}, noting as we fly over it, that Section {{{{{1}}}|6(c)}} reminds us [[for the avoidance of doubt]] that even if the {{{{{1}}}|Event of Default}} which triggers the {{{{{1}}}|Early Termination Date}} evaporates in the meantime — these things happen, okay? — yon {{{{{1}}}|Defaulting Party}}’s goose is still irretrievably cooked.<ref>If [[Credit department|Credit]] suddenly gets executioner’s remorse and wants to let the Defaulting Party off), the Non-defaulting Party will have to expressly terminate the close-out process, preferably by written notice. There’s an argument — though it is hard to picture the time or place on God’s green earth where a Defaulting Party would make it — that cancelling an in-flight close out is no longer exclusively in the Defaulting Party’s gift, and requires the NDP’s consent. It would be an odd, self-harming kind of Defaulting Party that would run ''that'' argument unless the market was properly gyrating.</ref>

There is a bit of a [[chicken licken]]-and-egg situation here as you can’t really work out their [[mark-to-market]] values for that date at any time ''before'' that date, unless you are able to see into the future or something. Anyway, that’s a conundrum for your [[Trader|trading]] people (and in-house [[Metaphysics|metaphysicians]]) to deal with and it need not trouble we [[Legal Eagles|eagles of the law]]. For our purposes, the trading and risk people need to come up with {{isdaprov|Close-out Amount}}s for all outstanding {{{{{1}}}|Transaction}}s. Once they have done that you are ready for your Section {{{{{1}}}|6(e)}} notice.

==={{{{{1}}}|Early Termination Amount}}===