Section 2(a)(iii) - ISDA Provision: Difference between revisions

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Section 2(a)(iii) - ISDA Provision (view source)

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Replaced content with "{{isdaanat|2(a)(iii)}} The world-famous flawed asset provision in the {{isdama}}. ===And a flawed asset provision is what, exactly?=== {{Flawed asset capsule}} {{ref}}"
(Replaced content with "{{isdaanat|2(a)(iii)}} The world-famous flawed asset provision in the {{isdama}}. ===And a flawed asset provision is what, exactly?=== {{Flawed asset capsule}} {{ref}}")
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{{isdaanat|2(a)(iii)}}
{{isdaanat|2(a)(iii)}}
The world-famous [[flawed asset]] provision in the {{isdama}}
The world-famous [[flawed asset]] provision in the {{isdama}}.
 
===And a flawed asset provision is what, exactly?===
===Draft ISDA Section {{isdaprov|2(a)(iii)}} Protocol===
{{Flawed asset capsule}}
These amendments are being led by [[ISDA]] and are likely to take effect by protocol. These changes are separate to the ones being contemplated under DFA.
{{ref}}
 
The revised text looks to address 4 concerns (each arising from English case law):
 
*'''Time Limit''': Will now be triggered by the {{isdaprov|Defaulting Party}}serving notice on the {{isdaprov|Non-defaulting Party}}. Bank of England, FSA and Fed all keen for the period to be short (UK had suggested 1 month).
*'''Gross/net issue''': (per {{casenote|Lomas|Firth Rixson}} and {{casenote|Marine Trade|Pioneer}})
*'''Due date expiry issue''': (per {{Casenote|Marine Trade|Pioneer}})
*'''Extinguishment issue''': (per {{casenote|Lomas|Firth Rixson}}) and
*"Terminated Transaction" issue (per [[Pioneer v Cosco (Case Note)|Cosco]]).
 
Still, the revised language raises a few concerns:
*'''Incurable {{isdaprov|Events of Default}}''': [[ISDA]] was looking to apply the time restriction only to "incurable" {{isdaprov|Events of Default}}. Not sure the list was sufficiently comprehensive to achieve that. Others have suggested to limit it to {{isdaprov|Bankruptcy}}. Anyway, none of that works under English law for capital reasons and so [[ISDA]] will be changing to apply the language to all {{isdaprov|Events of Default}} ([[FCA]] will require this).
*The language is problematic where, for example, a {{isdaprov|Defaulting Party}} informs the {{isdaprov|Non-defaulting Party}} of a {{isdaprov|Misrepresentation}}. {{isdaprov|Non-defaulting Party}} waives the misrep and then the "defaulter" experiences a {{isdaprov|Default Under Specified Transaction}}. Would leave a gap on the CP.
 
===Original Text of Section {{isdaprov|2(a)(iii)}}===
The original language is in the panel above right. Innocuous looking, isn't it.
===Modified Text as per ISDA draft protocol===
But then the Protocol of the Elders of ISDA had a go at fixing [[Metavante]] concerns. Now look what they've done:
===Section {{isdaprov|2(a)(iii)}}===
{{isdaquote|{{ISDA Master Agreement 2002 2(a)(iii) Protocol}}|2(a)(iii)|2002}}
 
===Restatement of Section {{isdaprov|9(c)}} {{isdaprov|Survival of Obligations}} in entirety:===
{{isdaquote|{{ISDA Master Agreement 2002 9(c) Protocol}}|2(a)(iii)|2002}}
 
===Amendment to Section {{isdaprov|2(e)}} of the {{1992ma}} only ===
{{isdaquote|{{ISDA Master Agreement 1992 2(e) Protocol}}|2(e)|1992}}
 
NB there isn't a Section {{isdaprov|2(e)}} in [[2002 ISDA Master]] - this amendment is purely to bring the {{1992isda}} in line with the 2002 provision on {{isdaprov|Interest and Compensation}}.
 
{{fullanat2|isda|Terminated Transactions Definition Protocol|2002|Terminated Transactions Definition Protocol|2002}}
===Additional {{isdaprov|Definitions}} in Section {{isdaprov|14}}===
{{isdaquote|{{ISDA Master Agreement 2002 Condition End Date Definition Protocol}}|Condition End Date Definition|2002}}
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