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| {{manual|MI|2002|2(a)|Section|2(a)|medium}} | | {{manual|MI|2002|2(a)|Section|2(a)|medium}} |
| {{isdaanat|2(a)}}
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| ''Section 2(a) is identical in the {{1992ma}} and the {{2002ma}}.''
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| 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''”.
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| So, for academics and frustrated geeks only:
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| ====Section {{isdaprov|2(a)(iii)}}====
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| 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}}.
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| 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}}.
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| 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.
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| 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.
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| 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]].
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| ===HMT concerns===
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| The key concern for HMT relates to non-payment into the insolvent estate by the insolvent company's debtors. Specifically:
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| 1. '''Time delay''' - how long can parties rely on {{isdaprov|2(a)(iii)}} for? Indefinitely?
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| 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.
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| {{sa}}
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| *[[Case Note - Section (2)(a)(iii) - Reed Smith]]
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| *[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]
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| *[[Metavante]]
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| {{c|Insolvency}}
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