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Negotiation oubliette: Difference between revisions
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Into the oubliette you will go, taking the whole negotiation with you, the moment anyone proposes to accommodate any of the infinite count of [[tail event]]s that in logical theory could but in recorded history never have come about. Seeing an oubliette coming early is vital, as is the right response, since falling into it is very easy to do. The notion of a “clabby conversation” translates very well into the world of [[contract negotiation]]. | Into the oubliette you will go, taking the whole negotiation with you, the moment anyone proposes to accommodate any of the infinite count of [[tail event]]s that in logical theory could but in recorded history never have come about. Seeing an oubliette coming early is vital, as is the right response, since falling into it is very easy to do. The notion of a “clabby conversation” translates very well into the world of [[contract negotiation]]. | ||
So let’s look at the classic case. Warning: we are about to drop into an unseemly amount of detail about something that is very, ''very'' [[Tedium|dull]], but that is the very point: by seeing how dull these holes in the ground are, we can learn how to avoid falling into them. Remember: [[Tedium is particular, not generic|tedium is ''always'' specific, never general]]. | |||
===The classic negotiation oubliette: {{isdaprov|Default Under Specified Transaction}}=== | |||
As all [[ISDA ninja]]s will well know, {{icds}} left the door open on a bit of chicanery in its conceptualisation of {{isdaprov|Default Under Specified Transaction}}. | |||
[[DUST]] a form of limited bilateral [[Cross acceleration|cross-acceleration]]: a right to close out transactions under one master agreement because your counterparty has defaulted on transactions under another one. A simple enough concept, and a prudent [[credit mitigation]] tool, even if it is rarely<ref>Um, ''ever''.</ref> used in practice. | |||
''But''. There are idiosyncrasies in some markets. In many [[Securities financing transaction|securities financing arrangement]]s (e.g., [[stock loan]] and [[repo]]) settlement failures are common, and have nothing to do with credit stress: these are pure operational fails, they get quickly sorted out by [[buy-in]], and the parties move on. But technically a [[buy-in]] is an early termination of the transaction and — depending on your master agreement<ref>The GMSLA, a settlement fail is specifically not an Event of Default. there is no such carve-out under the {{gmra}} or the American equivalents the {{mra}} and {{msla}}.<ref> — may technically be an [[event of default]]. In many cases it is a matter of market convention, not documentation, that these are not treated as events of default. | |||
Let’s say your [[credit department]] has it in its head that [[cross default]] is an important protection in a [[Securities financing transaction|securities financing arrangement]]. This is a peculiar view, shared by few in the market and lacking a solid base in common sense, but of such gems of incongruous conviction propel many a livelihood in the Square Mile and we should not gainsay them. They are inexplicable brute facts of the universe, like the cosmological constant or the popularity of golf. | Let’s say your [[credit department]] has it in its head that [[cross default]] is an important protection in a [[Securities financing transaction|securities financing arrangement]]. This is a peculiar view, shared by few in the market and lacking a solid base in common sense, but of such gems of incongruous conviction propel many a livelihood in the Square Mile and we should not gainsay them. They are inexplicable brute facts of the universe, like the cosmological constant or the popularity of golf. | ||