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Template:Isda 2(a)(iii) summ: Difference between revisions
→...These days?
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If the pandemic didn’t do the job, the Russia/Ukraine war of 2022 has rudely disabused us of the notion. We are left with master agreements that do not, terribly well, deal with the illogicalities of disease, pestilence, war, sanctions, and the sudden, indeterminate interruption of cross-border commercial relations. Nowhere is this better illustrated than Section {{{{{1}}}|2(a)(iii)}} — which per the below, was increasingly an irrelevance anyway — which speaks to a world in which the worst thing one could do was repudiate a contract. It ''really'' doesn’t work when the fog of war descends and it isn’t clear whether one should, or is allowed to, or must, make payments — opposing governments may have diametrically opposed rules on the topic — and there is a clash of sanctions as well as civilisations. | If the pandemic didn’t do the job, the Russia/Ukraine war of 2022 has rudely disabused us of the notion. We are left with master agreements that do not, terribly well, deal with the illogicalities of disease, pestilence, war, sanctions, and the sudden, indeterminate interruption of cross-border commercial relations. Nowhere is this better illustrated than Section {{{{{1}}}|2(a)(iii)}} — which per the below, was increasingly an irrelevance anyway — which speaks to a world in which the worst thing one could do was repudiate a contract. It ''really'' doesn’t work when the fog of war descends and it isn’t clear whether one should, or is allowed to, or must, make payments — opposing governments may have diametrically opposed rules on the topic — and there is a clash of sanctions as well as civilisations. | ||
=== | ===Even normal days, ''these'' days?=== | ||
The overriding mischief that a [[flawed asset]] provision addresses arises when a solvent swap counterparty with a long-dated [[out-of-the-money]] portfolio, finds its counterparty has, against the run of play, gone bust. If I am in the hole to you to the tune of $50 million, but that liability isn’t due to mature for ten years, in which time it might well come right and even go positive, I don’t want to crystallise it now, at the darkest point, just because ''you'' sir have gone tits-up. | The overriding mischief that a [[flawed asset]] provision addresses arises when a solvent swap counterparty with a long-dated [[out-of-the-money]] portfolio, finds its counterparty has, against the run of play, gone bust. If I am in the hole to you to the tune of $50 million, but that liability isn’t due to mature for ten years, in which time it might well come right and even go positive, I don’t want to crystallise it now, at the darkest point, just because ''you'' sir have gone tits-up. | ||
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For [[synthetic prime brokerage]] fiends, there is another reason to be unbothered by Section 2(a)(iii): you shouldn’t ''have'' a losing position, since you are meant to be perfectly delta-hedged. Right? | For [[synthetic prime brokerage]] fiends, there is another reason to be unbothered by Section 2(a)(iii): you shouldn’t ''have'' a losing position, since you are meant to be perfectly delta-hedged. Right? | ||
===Flawed assets generally=== | ===Flawed assets generally=== | ||
{{Flawed asset capsule}} | {{Flawed asset capsule}} | ||