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{{isdaanat|2(a)}} | {{isdaanat|2(a)}} | ||
''Section 2(a) is identical in the {{1992ma}} and the {{2002ma}}.'' | ''Section 2(a) is identical in the {{1992ma}} and the {{2002ma}}.'' | ||
Of these provisions, the one that generates the most controversy (chiefly | |||
Of these provisions, the one that generates the most controversy (chiefly among academics and scholars, it must be said) is Section {{isdaprov|2(a)(iii)}}. It generates a lot less debate between [[negotiator]]s precisely because its legal effect is nuanced, so its terms are more or less inviolate. Thus, should a [[counterparty]] of yours take a pen to Section {{isdaprov|2(a)(iii)}}, a clinching argument ''against'' that inclination is “''just don’t go there, girlfriend''”. | |||
So, for academics and frustrated geeks only: | So, for academics and frustrated geeks only: | ||
====Section 2(a)(iii)==== | ====Section {{isdaprov|2(a)(iii)}}==== | ||
Section 2(a)(iii) of the {{isdama}} was considered in the | Section 2(a)(iii) of the {{isdama}} was considered in the {{casenote|Metavante|Lehman}} litigation, which has led to more or less the opposite conclusion to the court in {{Casenote|Enron|TXU}}. | ||
The following is a proposal to "fix" the issues perceived to arise from the [[Metavante]] and, more specifically, the [[Marine Trade]] case with respect to | The following is a proposal to "fix" the issues perceived to arise from the [[Metavante]] and, more specifically, the [[Marine Trade]] case with respect to Section {{isdaprov|2(a)(iii)}}, about which HMT Treasury is sufficiently concerned so as to establish a consultation group to advise it on the {{isdama}}. | ||
Mean time, [[ISDA]] is looking to propose a market led solution. That is HMT's preferred position but they may well legislate if a workable solution is not forthcoming. | Mean time, [[ISDA]] is looking to propose a market led solution. That is HMT's preferred position but they may well legislate if a workable solution is not forthcoming. | ||
HMT has not concluded that 2(a)(iii) necessarily operates as a walk-away clause (or | HMT has not concluded that {{isdaprov|2(a)(iii)}} necessarily operates as a walk-away clause (or an “[[ipso facto clause|ipso facto]]” clause, as it is called in the US) but is concerned it may have that economic effect and is is raising policy arguments as to why that should not be allowed to continue. | ||
Clearly, any push towards a finding of "walk-aways" takes derivative counterparties to an unsupportable place with regard to RWA generation under the [[Capital Accords]]. | Clearly, any push towards a finding of "walk-aways" takes derivative counterparties to an unsupportable place with regard to RWA generation under the [[Capital Accords]]. | ||
===HMT concerns=== | ===HMT concerns=== | ||
The key concern for HMT relates to non-payment into the insolvent estate by the insolvent company's debtors. Specifically: | The key concern for HMT relates to non-payment into the insolvent estate by the insolvent company's debtors. Specifically: | ||
1. '''Time delay''' - how long can parties rely on 2(a)(iii) for? Indefinitely? | 1. '''Time delay''' - how long can parties rely on {{isdaprov|2(a)(iii)}} for? Indefinitely? | ||
2. '''Opportunism''': Can a non-defaulting party effectively monetise the gross obligations of a defaulting party by not designating an {{isdaprov|Early Termination Date}} and then realising value through the exercise of {{isdaprov|Set-off}} rights or the enforcement of security? | 2. '''Opportunism''': Can a non-defaulting party effectively monetise the gross obligations of a defaulting party by not designating an {{isdaprov|Early Termination Date}} and then realising value through the exercise of {{isdaprov|Set-off}} rights or the enforcement of security? | ||
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3. Faux J indicated in his judgment that the obligations of the non-defaulting party under the [[ISDA]] never come into existence if the condition precedent is not satisfied on the relevant payment date: i.e., the failure cannot be cured and the obligations cannot come into existence on a future date if the CP is subsequently satisfied. That view is controversial and was expressed obiter dicta. The CA may not address it for that latter reason. | 3. Faux J indicated in his judgment that the obligations of the non-defaulting party under the [[ISDA]] never come into existence if the condition precedent is not satisfied on the relevant payment date: i.e., the failure cannot be cured and the obligations cannot come into existence on a future date if the CP is subsequently satisfied. That view is controversial and was expressed obiter dicta. The CA may not address it for that latter reason. | ||
{{sa}} | |||
*[[Case Note - Section (2)(a)(iii) - Reed Smith]] | |||
*[http://ftalphaville.ft.com/blog/2009/09/30/74606/lehman-metavante-and-the-isda-master-agreement/ Lehman, Metavante and the ISDA Master Agreement - FT Alphaville] | *[http://ftalphaville.ft.com/blog/2009/09/30/74606/lehman-metavante-and-the-isda-master-agreement/ Lehman, Metavante and the ISDA Master Agreement - FT Alphaville] | ||
*[[Metavante]] | *[[Metavante]] |