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1987 ISDA Interest Rate and Currency Exchange Agreement: Difference between revisions
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1987 ISDA Interest Rate and Currency Exchange Agreement (view source)
Revision as of 12:53, 10 August 2012
, 10 August 2012→Close-out Netting under the {{1987ma}}
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==Close-out Netting under the {{1987ma}}== | ==Close-out Netting under the {{1987ma}}== | ||
Generally speaking: | It can be done, but tread carefully: the somewhat agricultural {{isdaprov|Automatic Early Termination}} provision may cause problems. Generally speaking: | ||
*'''Physical Settlement''': given that the {{1987ma}} doesn't include physical delivery provisions, if you have any physically settled trades under it, you'd need to also add boilerplate language in the master to ensure the close-out mechanic worked for them, including consequential amendments to Sections 5 and 6 of the 1987 master. | *'''Physical Settlement''': given that the {{1987ma}} doesn't include physical delivery provisions, if you have any physically settled trades under it, you'd need to also add boilerplate language in the master to ensure the close-out mechanic worked for them, including consequential amendments to Sections 5 and 6 of the 1987 master. | ||
*'''Bankruptcy and Automatic Early Termination''': section 5(a)(vii) of the {{1987ma}} is loosely drafted and includes events which it may be difficult to determine with accuracy. (esp. subsections (2), (7), and (8). This | *'''Bankruptcy and Automatic Early Termination''': section 5(a)(vii) of the {{1987ma}} is loosely drafted and includes events which it may be difficult to determine with accuracy. (esp. subsections (2), (7), and (8). This would be okay, except for the way '''automatic early termination works under the {{1987ma}}: | ||
**it happens by default (in the {{1992ma}} and subsequently it has to be elected, and only would be elected in those jurisdictions where it was needed to ensure [[close-out netting]]) | |||
**it happens by reference to '''all''' of the limbs of the Bankruptcy definition, including those which are observable and definitive. AET shouldn't kick in simply where a party "takes steps in furtherance of" an insolvency filing - it should only happen at the point of that actual insolvency filing. | |||
*The second sentence of Section 6(a) provides for the deemed occurrence of an {{isdaprov|Early Termination Date}} ''automatically'' upon the occurrence of an event falling within the Bankruptcy Event of Default. For example, although it will be clear when a petition for a winding up order has been filed, it will be unclear generally whether the deemed occurrence of the Early Termination Date took effect with respect to an event falling within sub-clause (2) at some time preceding the filing. | |||
By contrast, {{isdaprov|Automatic Early Termination}} under the {{1992ma}} and {{2002ma}}, if elected, does not apply to those events that are uncertain as to the precise time of their occurrence. Therefore, the enforceability of {{isdaprov|Automatic Early Termination}} in the {{1992ma}} and the {{2002ma}} cannot be called into question on the basis of the uncertainty created by the inclusion of the events in the {{1992ma}} and {{2002ma}} equivalent to those in the {{1987ma}} referred to above. | |||
====Relevant Provisions==== | ====Relevant Provisions==== | ||