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You’ll be most likely wanting to see the discussion on this wonderfully baffling subject under Section {{isdaprov|2(a)(iii)}} of the {{isdama}}. | |||
More generally, following an [[event of default]], a [[flawed asset]] provision allows an innocent, but [[out-of-the-money]] party to a derivative or securities finance transaction to suspend performance of its obligations without terminating the transaction and thereby crystallising a mark-to-market loss. | More generally, following an [[event of default]], a [[flawed asset]] provision allows an innocent, but [[out-of-the-money]] party to a derivative or securities finance transaction to suspend performance of its obligations without terminating the transaction and thereby crystallising a mark-to-market loss. | ||
The asset - a right to payment under the transaction - is | The asset - a right to payment under the transaction - is “flawed” in the sense that it only become payables if the conditions precedent are fulfilled. | ||
Section {{isdaprov|2(a)(iii)}} entered the argot in a simpler, more peaceable time, when zero threshold, daily margined {{tag|CSA}}s were an uncommon, rather fantastical sight. | Section {{isdaprov|2(a)(iii)}} entered the argot in a simpler, more peaceable time, when zero threshold, daily margined {{tag|CSA}}s were an uncommon, rather fantastical sight. They’re more or less obligatory now, so it’s hard to see the justification for a flawed asset provision. | ||
===Master trading agreements=== | ===Master trading agreements=== | ||
*'''{{isdama}}''': You can find it all, in gruesome detail, in the article on Section {{isdaprov|2(a)(iii)}}. The ISDA provision has generated some case law, including [[Metavante]] and [[Firth Rixson]], which the truly insatiable amongst you may care to read. | *'''{{isdama}}''': You can find it all, in gruesome detail, in the article on Section {{isdaprov|2(a)(iii)}}. The ISDA provision has generated some case law, including [[Metavante]] and [[Firth Rixson]], which the truly insatiable amongst you may care to read. | ||
*'''{{gmsla}}''': As far as I can see there is no {{isdaprov|2(a)(iii)}} equivalent in the GMSLA. Nor would you expect one. It makes little ense in a master agreement for transactions that generally have zero or short tenors, and are inherently margined daily as a matter of course – i.e., there is no “uncollateralised, large, [[out-of-the-money]] exposures” an innocent stock lender would want to protect such a flawed asset provision. | *'''{{gmsla}}''': As far as I can see there is no {{isdaprov|2(a)(iii)}} equivalent in the GMSLA. Nor would you expect one. It makes little ense in a master agreement for transactions that generally have zero or short tenors, and are inherently margined daily as a matter of course – i.e., there is no “uncollateralised, large, [[out-of-the-money]] exposures” an innocent stock lender would want to protect such a flawed asset provision. | ||
*'''{{gmsla}}''': Now | *'''{{gmsla}}''': Now here’s the funny thing. Even though the {{tag|GMRA}} is comparable to the {{tag|GMSLA}} in most meaningful ways, it '''does''' have a flawed asset provision. I don’t understand it, but that is true about much of the world of international finance. | ||
{{2(a)(iii)}} | {{2(a)(iii)}} | ||