Template:M comp disc 2002 ISDA 2
Readers looking for significant differences between the 1992 ISDA and 2002 ISDA will find their socks resolutely still on by the time they get to the end of section 2. Other than some new Multiple Transaction Payment Netting wording designed to untangle a cat’s cradle of language that, in this commentator opinion, didn’t need to be there in the first place, the only significant change in Section 2 is that the Default Interest provision has been removed and now appears, in a gruesomely reorganised format, in Section 9(h) of the 2002 ISDA.
Section 2(a)
The 1987 ISDA, being concerned only with interest rates and currency exchange, does not contemplate delivery, as such. Delivery implies non-cash assets. Therefore portions of 2(a)(i) and 2(a)(ii) were augmented in the 1992 ISDA to cater for this contingency. The 1992 ISDA also added a condition precedent to the flawed asset clause (Section 2(a)(iii)) that no Early Termination Date had been designated.
Thereafter Section 2(a) is identical in the 1992 ISDA and the 2002 ISDA. However the subsidiary definition of Scheduled Settlement Date — a date in which any Section 2(a)(i) obligations fall due — is a new and frankly uncalled-for innovation in the 2002 ISDA.
We have a special page dedicated to Section 2(a)(iii), by the way. That is a brute, and one of the most litigationey parts of the Agreement.
Section 2(b)
But for the new definition of Scheduled Settlement Date in the 2002 ISDA, the 1992 ISDA text is formally the same.
Section 2(c)
The 2002 ISDA introduces the concept of Multiple Transaction Payment Netting, thereby correcting a curiously backward way of applying settlement netting.
Section 2(d)
Other than an “on or after the date on which” embellishment towards the end of the clause, exactly the same text in the 1992 ISDA and the 2002 ISDA.
Section 2(e)
Section 2(e), dealing with default interest, was removed in the 2002 ISDA, and replaced with a spikier, more fulsome Section 9(h) (Interest and Compensation).
A new and different Section 2(e) for the 2002 ISDA was almost revived after the global financial crisis as a tool for imposing a “use it or lose it” trigger on Section 2(a)(iii), but the moment passed. See Condition End Date for more information.
Section 2(a)
Section 2(a) is identical in the 1992 ISDA and the 2002 ISDA.
Section 2(b)
But for the new definition of Scheduled Settlement Date in the 2002 ISDA, the 1992 ISDA text is formally the same.
Section 2(c)
Section 2(c) is about “settlement” or “payment” netting — that is, the operational settlement of offsetting payments due on any day under the normal operation of the Agreement — and not the more drastic close-out netting, which is the Early Termination of all Transactions under Section 6.
If you want to know more about close-out netting, see Single Agreement and Early Termination Amount.
Section 2(d)
Observant and less obedient scholars will remark what a pig’s ear the ISDA drafting committee made of a simple concept and, when given a once-in-a-decade opportunity to improve it in 2002, the combined intellectual might of ISDA, its members, friends, relations and their divers counsel, retinue and entourage, couldn’t.
Or didn’t.
Both are excruciating in the conveyance of a fairly simple idea, which, in a Nutshell™ is set out at the top of the panel on the right.