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| {{manual|MI|2002|5(a)(v)|Section|5(a)(v)|medium}} | | {{manual|MI|2002|5(a)(v)|Section|5(a)(v)|medium}} |
| Often confused with {{isdaprov|Cross Default}}. In fact, they’re meant to be mutually exclusive. That won’t stop folks conflating them, though. Look, we all do it.
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| This is like {{isdaprov|Cross Default}}, but for non “borrowing” style transactions - for example [[swap|swap agreements]] agreements and [[repo]]s, '''but only transactions between the two counterparties and their referenced {{isdaprov|Credit Support Provider}}s and {{isdaprov|Specified Entities}}'''.
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| If a [[Counterparty]] (or — sigh — its {{isdaprov|Credit Support Provider}} or {{isdaprov|Specified Entity}}) experiences an {{isdaprov|Event of Default}} under a [[swap]] agreement (or other transaction falling within the definition of {{isdaprov|Specified Transaction}}<ref>This is typically wide, though it excludes [[borrowed money]] - but check the Agreement!</ref> with you, this will be an {{isdaprov|Event of Default}} under the {{isdama}}.
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| ===[[Acceleration]], not [[Default]]===
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| {{tag|DUST}} is triggered by an ''[[acceleration]] following an'' [[event of default]] under the {{isdaprov|Specified Transaction}}, not upon the default itself<ref>Except where that happens on [[maturity]]: see drafting point below.</ref>. Since the {{isdaprov|Specified Transaction}} is between you and the other party to the {{isdama}}, there is no great loss — it is within your gift to accelerate the other contract — and to achieve [[set-off]] you would have to do so anyway.
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| This is less drastic than the corresponding {{isdaprov|Cross Default}} provision, which imports all the {{isdaprov|Events of Default}} from all {{isdaprov|Specified Indebtedness}} into the present one<ref>I should say I am grateful to my correspondent Nick for his helpful suggestion here. I don’t get many correspondents so it is extra special when one writes in with actual useful feedback. Thanks Nick! (To my other correspondents: hi, nice to hear from you too, but no I have not been in a car accident recently.) </ref>, even if the counterparty to the defaulted contract has itself waived its rights to exercise.
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| ===Drafting oddities===
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| ====Payment acceleration versus delivery acceleration — {{gmslaprov|mini close-out}}====
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| Upon a payment default under {{isdaprov|5(a)(v)}}(1), only that particular [[transaction]] must be accelerated (it doesn’t require full close out of the relevant [[Master agreement|Master Agreement]]. But a ''delivery'' default under {{isdaprov|5(a)(v)}}(3), is only triggered if ''the '''whole''' Master Agreement is closed out''.
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| Why would that be? Oh! Yes, [[Stock loan ninja]] at the back, with your hand up!
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| :'''''[[Stock loan ninja]]''' (for it is he)'': Sir! Sir! Please sir, is this to stop the [[mini-closeout]] of a single {{gmslaprov|Loan}} under a {{gmsla}}?
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| :'''''The [[JC]]''' (beaming inscrutably)'': Yeeeees — Go on — ?
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| :'''''SLN''''': Sir, please sir, settlement failures under a [[stock loan]] are often a function of market illiquidity (the asset to be delivered isn’t available) and aren’t necessarily indicative of credit deterioration, sir, so should not necessarily trigger a [[DUST]] under the [[ISDA]]. But this situation would never apply to a simple cash payment. On the other hand, if the ''whole'' {{gmsla}} is closed out as a result of a delivery fail, you clearly are in a credit-stress situation.
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| :'''''[[JC]]''''': Excellent!
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| ====Final payments====
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| The reason for the second limb of the definition is to catch final payments, which can’t be accelerated, since they’re already due.
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| ===What if I “jump the gun”?===
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| Could a wrongfully submitted notice of default be treated as a [[repudiatory|repudiation]]/[[anticipatory breach]] by the “[[non-defaulting party]]” giving the other party at least the right to withhold payments on the basis that this would constitute a {{isdaprov|Potential Event of Default}} by the party submitting the notice? There’s not much law on point, but the starting point is “no” - it would simply be an ineffective notice. '''However''', a non-payment on the basis of an ineffective notice would be impermissible and may itself amount to a {{isdaprov|Failure to Pay}}. But as to the mere dispatch of the notice itself, there is relatively recent case law<ref>{{casenote|Concord Trust|The Law Debenture Trust Corporation plc}}</ref> (albeit in the bond world) stating that an acceleration notice that is submitted wrongfully, i.e. when no actual event of default, is merely ineffective and does not give rise to a claim for breach of contract or damages from “defaulting party”. Clearly this has not been considered in context of ISDA per se (and may be nuances here that would lead to different result) but at it is a start.
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| {{DUST and Cross Default Comparison}}
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| {{sa}}
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| *[http://www.stroock.com/SiteFiles/Pub175.pdf The Importance Of Being Specified: Designating Affiliates - Strook]
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| {{c2|Events of Default|Breach of contract}}
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| {{ref}}
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