Template:M summ 1992 ISDA Unpaid Amounts

You may want to know where Unpaid Amounts feature in the ISDA Master Agreement. The answer: In Payments on Early Termination: Section 6(e)(i) (for Events of Default) and 6(e)(ii) (for Termination Events).

Spoddy point for old-fashioned 1992 ISDA hipster types: if “Loss” is your chosen means of close-out valuation, the concept of Unpaid Amounts is more or less factored into the definition of Loss:

Loss includes losses and costs (or gains) in respect of any payment or delivery required to have been made (assuming satisfaction of each applicable condition precedent) on or before the relevant Early Termination Date and not made, except, so as to avoid duplication, if Section 6(e)(i)(1) or (3) or 6(e)(ii)(2)(A) applies...

Duplication? What duplication? Ohhhh — that duplication.

The “except, so as to avoid duplication” coda looks to be a magnificent piece of discombobulation from our old friends in ISDA’s crack drafting squad™ — and in the final analysis, it is, but not for the reasons you think it first — because at first blush there doesn’t seem to be any risk of duplication: the excluded paragraphs all deal exclusively with ISDA Master Agreements where Market Quotation, and not Loss, applies. So this Loss definition seems entirely irrelevant ... until you notice that Settlement Amount used when valuing with Market Quotation — stay with me here — defaults to Loss when, as most assuredly it will, Market Quotation turns out to be a totally impractical means of valuing a Terminated Transaction, since no-one will give you a price for a trade they can’t actually enter.

So, yes it is a piece of massive discombobulation, but for a deeper reason than appears at first — namely, that Market Quotation is waste of space anyway.

Whatever, it is simply magical that ISDA’s crack drafting squad™ saw fit to treat Loss, but not Market Quotation, as being converted into a Termination Currency Equivalent including Unpaid Amounts, especially as Loss is a fallback when Market Quotation fails to work, as inevitably it will.

This is why the drafting of the Default provision (paragraph 6) of the 1995 CSA is as tortuous as it is. If you were wondering.