Template:Cross default in securities financing agreements: Difference between revisions

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→‎Ok, how about set-off. I’ve got you there, haven’t I?

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 *Even if there aren’t, ''either party can recall the loans on any day''<ref>Unless they are [[term stock loan|term transactions]], but even there, the terms tend to be short — ninety days is a maximum — and see above re usual daily [[collateral]] flows.</ref>
 === Ok, how about set-off. I’ve got you there, haven’t I?===
-With set-off you truly open yourself up to the risk of a [[negotiation oubliette]]: {{oubliette capsule}}
+With [[set-off]] you truly open yourself up to the risk of a [[negotiation oubliette]].
-In any case, [[set-off]] is a furry and misunderstood thing. consider two scenarios: one where you have independent close-out rights under both agreements that allow you to terminate both, but no written contractual right of set-off, and one where you do not: Your {{gmsla}} has blown up, but your counterparty doggedly [[Harold Lloyd scenario|hangs on under your other master agreements like Harold Lloyd dangling from a clock tower]], refusing to let go, heroically continuing to perform, defying the circling vultures of default.
+In any weather, [[set-off]] is a furry and misunderstood thing. Consider two scenarios: one where you have independent, live [[Close-out|close-out rights]] under different master agreements (i.e., you don’t actually ''need'' a Cross Default), but no written contractual right of set-off ''between'' those agreements, and one where you do not: Your {{gmsla}} has blown up, but your counterparty doggedly [[Harold Lloyd scenario|hangs on under your other master agreements like Harold Lloyd dangling from a clock tower]], refusing to let go, heroically continuing to perform, defying the circling vultures of default.
-Where ''both'' master agreements have independently terminated, there is a common-law set-off right. It might not get to the level of comfort to ameliorate your financial reporting team’s capital calculators, but you would need a fully weaponised [[master netting agreement]] and separate [[netting opinion]] for that anyway. But, in practice you have off-setting obligations, in the same currency, due immediately (and therefore at the same day) and under English common law there is a set-off right. This may be interfered with by your counterparty’s insolvency regime — but then so would an explicit set-off clause, unless you had a F.W.M.N.A. as described above — but in many cases would not: English insolvency set-off is ''compulsory''. This is to do no more than recognise that possession is nine-tenths of the law: I may owe you fifteen, but you owe me ten, so I will paying five and we will be square. Since no insolvency regime sophisticated enough to contemplate post-insolvency set-off would deny its efficacy, we must assume the law will be silent, and it will be a resourceful insolvency practitioner indeed who can construct an equitable argument to overcome that. (If you owe me ''twenty'' I will be a sport and call it quits if you pay me five: until that time you can whistle for it).
+===Double default, no contractual set-off===
+Where ''both'' master agreements have independently terminated, you have a common-law set-off right.<ref>assuming your base currency is the same for each. If it is not I CAN’T HELP YOU. YOU ARE MEANT TO BE A PROFESSIONAL.</ref> It might not quite ameliorate your [[financial reporting]] team’s [[regulatory capital]] calculators, but you would need a fully weaponised [[master netting agreement]] and separate [[netting opinion]] to help with that anyway.
+But, in practice you have off-setting obligations, in the same currency, due immediately (and therefore onthe same day) and under common law there ''is'' a set-off right. This may be interfered with by your counterparty’s [[insolvency]] — but then so would an explicit set-off clause, unless you had a F.W.M.N.A. as described above — but in many cases would not: In English law, for example, [[insolvency set-off]] is not just available but ''compulsory''.
+This is to do no more than recognise that possession is nine-tenths of the law: I may owe you fifteen, but you owe me ten, so I will paying five and we will be square. Since no insolvency regime sophisticated enough to contemplate post-insolvency set-off would deny its efficacy, we must assume the law will be silent, and it will be a resourceful insolvency practitioner indeed who can construct an equitable argument to overcome that. (If you owe me ''twenty'' I will be a sport and call it quits if you pay me five: until that time you can whistle for it).
+====Single default, no contractual set-off====
 Where only one master agreement has actually defaulted — the [[Harold Lloyd scenario]] — it is even easier. By your own theory of the game, your counterparty, though broken, battered, bruised and perhaps expiring in a heap behind the dumpsters in the alley next to the kitchen, ''is still with us''. Here we are contemplating an arrangement rather like  “[[settlement netting]]”. I owe you, you owe me, and I am simply going to serially discharge you from your indebtedness to me by neglecting to pay you, and declaring that inaction a satisfaction of your corresponding debt to me. If it would be hard for an insolvency practitioner to argue against that kind of practical withholding, imagine how hard it will be for a ''solvent'' counterparty. Especially one on the bones of it arse, that can’t afford a decent lawyer. If if could, it would have just paid you in the first place, right?