82,891
edits
Amwelladmin (talk | contribs) (Created page with "{{subst:M gen 2002 ISDA 5(a)(v)}}") |
Amwelladmin (talk | contribs) No edit summary |
||
Line 1: | Line 1: | ||
===[[Acceleration]], not [[Default]]=== | ===[[Acceleration]], not [[Default]]=== | ||
{{ | {{isda92prov|DUST}} is triggered by an ''[[acceleration]] following an'' [[event of default]] under the {{isda92prov|Specified Transaction}}, not upon the default itself<ref>Except where that happens on [[maturity]]: see drafting point below.</ref>. Since the {{isda92prov|Specified Transaction}} is between you and the other party to the {{isdama}}, there is no great loss — it is within your gift to accelerate the other contract — and to achieve [[set-off]] you would have to do so anyway. | ||
This is less drastic than the corresponding {{ | This is less drastic than the corresponding {{isda92prov|Cross Default}} provision, which imports all the {{isda92prov|Events of Default}} from all {{isda92prov|Specified Indebtedness}} into the present one<ref>I should say I am grateful to my correspondent Nick for his helpful suggestion here. I don’t get many correspondents so it is extra special when one writes in with actual useful feedback. Thanks Nick! (To my other correspondents: hi, nice to hear from you too, but no I have not been in a car accident recently.) </ref>, even if the counterparty to the defaulted contract has itself waived its rights to exercise. | ||
===Default under ''any'' {{ | ===Default under ''any'' {{isda92prov|Specified Transaction}}, and the question of overreach=== | ||
{{ | {{isda92prov|DUST}} attaches to a “default” (not defined) under ''any'' {{isda92prov|Specified Transaction}}, not '''''all''''' {{isda92prov|Specified Transaction}}s. But if you have a credit concern with a counterparty under a derivative-like master agreement — even on a failure to pay — you are hardly likely to be closing out some, but not other transactions. Especially not now in these days of compulsory regulatory [[variation margin]]. You’ll be closing out the lot. Yet, with different rules depending on whether its a failure to pay (before or at maturity), failure to deliver or repudiation, we think {{icds}} has made it all a bit fiddly. They may be strictly correct, but come ''on''. | ||
Note that in the {{2002ma}} there is specific accommodation for the “[[mini close-out]]” concept you see nowadays in securities financing arrangements, which is a self-help remedy to deal with non-credit related settlement failures. That wasn't around in 1992, so wasn’t addressed in this version. {{icds}} are good, but they’re not ''clairvoyant''. | |||
:“For the purposes of Section {{ | So you will see countertpasrties, especially in the US, where the {{1992ma}} is still popular, wordsmithing the ambit of the DUST provision. We have some sympathy with the point, pedantic though it may be, but really feel that the [[DUST]] formulation could be simplified for transactions under any master agreement — even for [[repudiation]] — by requiring the {{isda92prov|Non-Defaulting Party}} to have closed out the whole arrangement, not just the {{isda92prov|Specified Transaction}} itself. An amendment to the following effect, rendered in ISDA’s leaden prose, wouldn’t be out of the question: | ||
:“For the purposes of Section {{isda92prov|5(a)(v)}} where any {{isda92prov|Specified Transaction}} is governed by a [[master agreement]], an event will only be a {{isda92prov|Default Under Specified Transaction}} where it results in an early termination of all transactions outstanding under the documentation applicable to that {{isda92prov|Specified Transaction}}.” | |||
===Final payments=== | ===Final payments=== |