Template:Isda 2(a)(iii) summ: Difference between revisions

Template:Isda 2(a)(iii) summ (view source)

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 This presented the First Men with an unusual scenario when they were designing the {{isdama}}: what happens if ''you'' blow up when ''I'' owe money to you? Here I might not want to crystalise my contract: since it will involve me paying you a mark-to-market amount I hadn’t budgeted for I might not even be able to. (This is less of a concern in these days of mandatory bilateral variation margin, but the {{isdama}} was forged well before this modern era).
-The answer the [[First Men]] came up with was the “flawed asset” provision of Section {{{{{1}}}|2(a)(iii)}}. There is an argument it wasn’t a good idea then; there is a better argument it isn’t a good idea now, but like so many parts of this sacred form it is there and, for hundreds and thousands of ISDA trading arrangements, we are stuck with it.
+The answer the [[First Men]] came up with was the “flawed asset” provision of Section {{{{{1}}}|2(a)(iii)}}. This allows an innocent, but out-of-the-money, party faced with its counterparty’s default not to close out the ISDA, but to just freeze its obligations, and do nothing until the situation is resolved.
+There is an argument it wasn’t a good idea then; there is a better argument it isn’t a good idea now, but like so many parts of this sacred form it is there and, for hundreds and thousands of ISDA trading arrangements, we are stuck with it.
 ====Flawed assets generally====
 {{Flawed asset capsule|{{{1}}}}}