Template:M intro isda qualities of a good ISDA: Difference between revisions

Template:M intro isda qualities of a good ISDA (view source)

Revision as of 11:51, 14 February 2024

2,497 bytes added , 14 February

→‎Simple

Amwelladmin

Bureaucrats, Interface administrators, Administrators

82,758

edits

@@ Line 58: / Line 58: @@
 === Simple ===
+All else being equal, make it ''simple''. This is somewhat conditional, by serenity's prayer, your counterparty night have a ten for its own convoluted terms, and it takes advanced Dale Carnegie diplomacy to persuade such a chap not to self-harm — but at the least do not be the progenitor of unnecessary complication. Convolution causes confusion, confusion leads to explanation, explanation leads eventually to resolution, but that resolution takes time, burns resources, and comes at the cost of formal  or even substantive variance from your standard.
+Having to explain something that should have been clear in the first place is, at the least wasted evergy.
+Use plain language. Short sentences, modern language. Write agreeably: “must” instead of “shall be obligated to —”; “may” instead of “shall be entitled but, for the avoidance of doubt, not obliged to —”.
+But simple aids easy comprehension at the time when things are going to hell.
+It is defiantly standard, to the point where some will amend the schedule by reference to the line numbers in the pre-printed standard. (Don't do this: there are reformatted versions floating around with different pagination and it makes for confusion when your ISDA is scanned as text into the Edgar database etc.). It has twenty one years of history, too, and is now so canonical it is hard to imagine ISDA publishing a new one.
+Almost all the tools you need are in the master. It bears repeating that, in these days of daily variation margin, it will be a rare day when your only option to close out a potentially loss making ISDA will be some bespoke Additional Termination Event like a NAV trigger or a key man provision. One more right will complete the set: a right to call for more margin. Most prime brokers have this. If you can, by close of day, engineer a failure to pay (or an infusion of cash) then your key person trigger, cross default rights, financial reports, representations and warranties are little use to you.
+[Another argument against bilateral margin: the customer can always close out a trade: the dealer is not on risk, QED, and will always give a price to exit — the unwind price on its hedge. It is not generally a taxable event for the dealer. Dealers can’t unilaterally terminate customer positions, and even where they can — [[synthetic prime broker]]s generally have the ''right'' to — they generally won’t, without extreme provocation, ''because that would upset the customer''.