Template:M gen 2002 ISDA 5(a)(v): Difference between revisions

Template:M gen 2002 ISDA 5(a)(v) (view source)

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 ===Default under ''any'' {{isdaprov|Specified Transaction}}, and the question of overreach===
+{{isdaprov|DUST}} attaches to a “default” (not defined) under ''any'' {{isdaprov|Specified Transaction}}, and (other than under Section {{isdaprov|5(a)(v)}}(3) for delivery failures) not ''''all''''' {{isdaprov|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''.
-{{isdaprov|DUST}} attaches to a “default” (not defined) under ''any'' {{isdaprov|Specified Transaction}}, and not ''''all''''' {{isdaprov|Specified Transaction}}s. This is a little given the avowed intent of DUST, which is to address credit concerns. If you have a credit concern with a counterparty under a derivative-like master agreement, you are hardly likely to be closing out some, but not other Transactions. You’ll be closing out the lot.
+So we have a lot of sympathy with the point, pedantic though it may be, that the [[DUST]] formulation could be simplified An amendment to the following effect, rendered in ISDA’s leaden prose, wouldn’t be out of the question:
-There are some types of {{isdaprov|Specified Transaction}} — notably [[stock loans]] — where “[[default]]”, in the wider sense of “not performing ''delivery'' obligations when due”, are a common experience in the market, as a result of operational settlement failures, and don’t have any particular credit content. Indeed the {{gmsla}}’s concept of [[mini close-out]]<ref>See Para {{gmslaprov|9.2}} of the {{gmsla}}</ref> addresses exactly this contingency: your counterparty has suffered a settlement glitch, you want to close-out the transaction and [[buy in]] your counterparty so you can cover your own onward delivery obligations, but there is no suggestion your counterparty is nose-diving into the side of a hill. Indeed, the [[Mini close-out - GMSLA Provision|mini-closeout]] is explicitly described as being ''not'' an {{gmslaprov|Event of Default}}. This is why Section {{isdaprov|5(a)(v)}}(3) failure to ''deliver''' references ''all'' Transactions, while a Section 5(a)(v)(1) failure to ''pay'' does not.
-So we have a lot of sympathy with the point, pedantic though it may be, that the [[DUST]] formulation is wider than it needs to be. An amendment to the following effect wouldn’t be out of the question:
-References in section {{isdaprov|5(a)(v)}}
+:“For the purposes of Section {{isdaprov|5(a)(v)}} where any {{isdaprov|Specified Transaction}} is governed by a [[master agreement]], an event will only be a {{isdaprov|Default Under Specified Transaction}} where it results in an early termination of all transactions outstanding under the documentation applicable to that {{isdaprov|Specified Transaction}}.”
 ===Final payments===