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Template:Isda 2(e) summ: Difference between revisions
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Section {{{{{1}}}|2(e)}} covers that netherworld between when a party ''defaults'' on its obligations under a {{{{{1}}}|Transaction}} and when (and if)the other, innocent, party closes that {{{{{1}}}|Transaction}} out. | |||
Now, you might think this would of necessity be a short period — if the other guy is in default I am hardly going to sit around and do nothing, am I? — but a swap transaction isn’t like a normal lending transaction, the innocent party might be significantly [[out of the money]] on the {{{{{1}}}|Transaction}}, and therefore quite happy to to do nothing, particularly since, as long as the default is continuing, Section {{{{{1}}}|2(a)(iii)}} suspends that party’s own payment and delivery obligations under the {{{{{1}}}|Transaction}} indefinitely. | |||
Note the difference between a defaulted ''payment'' obligation and a defaulted ''delivery'' obligation: payments have a fairly anal penalty interest accrual regime; deliveries are left up to the parties to agree for themselves in the {{{{{1}}}|Schedule}}. This, in the JC’s unsolicited opinion, is a bit wet on ISDA’s part: a delivery obligation (usually of a tradable security or commodity) clearly has an observable market value as of its due delivery date. It is hard to see why interest could not accrue on that notional value. But anyway. | |||