Template:Isda Illegality summ
An {{{{{1}}}|Illegality}} is a Section {{{{{1}}}|5(b)}} {{{{{1}}}|Termination Event}} — being one of those irritating vicissitudes of life that are no-one’s fault but which mean things cannot go on, and not a Section {{{{{1}}}|5(a)}} {{{{{1}}}|Event of Default}}, being those perfidious actions of one or other Party which bring matters to an end which, but for that behaviour, ought really to have been avoided.
Note also the impact of {{{{{1}}}|Illegality}} and {{{{{1}}}|Force Majeure}} on a party’s obligations to perform through another branch under Section {{{{{1}}}|5(e)}}, which in turn folds into the spectacular optional representation a party may make under {{{{{1}}}|10(a)}} to state the blindingly obvious, namely that the law as to corporate legal personality is as is commonly understood by first-year law students. Who knows — maybe it is different in emerging markets and former Communist states?
For the silent great majority of swap entities for whom it is not, the curious proposition arises: what is the legal, and contractual, consequence of electing not to state the blindingly obvious? Does that mean it is deemed not to be true?
If the rules change, that is beyond your control, so it can’t be helped and hence Illegality is a {{{{{1}}}|Termination Event}} not an {{{{{1}}}|Event of Default}}. The 2002 ISDA develops the language of the 1992 ISDA to cater to insomniacs and paranoiacs but does not really add a great deal of substance.
An {{{{{1}}}|Illegality}} may only be triggered after exhausting the fallbacks and remedies specified in the ISDA Master Agreement.
Waiting Period
The point of Waiting Period is, for potential scenarios that might wind up justifying termination later, but you don’t yet know that, to build in a period to wait and see. For Illegality events (Section 5(b)(i)) is three Local Business Days — it is not so likely that an Illegality will sort itself out; for a Force Majeure Event (5(b)(ii) — where insh’Allah, things will come right and everyone can eventually go back to what they were doing, it is eight Local Business Days.
Waiting Periods — as defined in the ISDA Master Agreement also sometimes show up sometimes in other booklets — for example, ISDA’s Emissions Annex.
Through the good offices of Section 5(d), payments and deliveries which otherwise would be due during a Waiting Period are suspended.