Template:M summ 2002 ISDA 5(a)(vii)
The truncating the grace period from 30 days in the 1992 ISDA to 15 days in the 2002 ISDA has, in aggregate over the whole global market, kept many a negotiator in “meaningful” employment. It has also been a large reason why many organisations did not move to the 2002 ISDA and of those who eventually did — organisations whom you’d think would know better — then set about amending these grace periods back to the 1992 ISDA standard of 30 days or better still, insisted on sticking with the 1992 ISDA, but upgrading every part of it to the 2002 ISDA except for the Bankruptcy and Failure to Pay grace periods. A spectacular use of ostensibly limited resources, and an insight into whose benefit organisations really operate for.
Regional bankruptcy variations
The Germanic lands have peculiar ideas when it comes to bankruptcy — particularly as regards banks, so expect to see odd augmentations and tweaks to ISDA’s crack drafting squad™ standard language. Will these make any practical difference? Almost certainly not: it is hard to see any competent authority in Germany, Switzerland or Austria — storeyed nations all, in the long history of banking, after all — not understanding how to resolve a bank without blowing up its netting portfolio. Especially since Basel, where the netting regulations were formulated, is actually in Switzerland.
We have a whole page about Swiss Bankruptcy Language. True story.
The market standard “bankruptcy” definition
The ISDA bankruptcy definition is rarely a source of great controversy (except for the grace period, which gets negotiated only through custom amongst ISDA negotiators because, in its wisdom, ISDA’s crack drafting squad™ thought fit to halve it from 30 days to 15 in the 2002 ISDA.
So you have a sort of pas-de-deux between negotiators where they argue about it for a while before getting tired, being shouted at by their business people, and moving on to something more important to argue about, like Cross Default).[1]
Otherwise, the ISDA bankruptcy clause is a much loved and well-used market standard and you often see it being co-opted into other trading agreements precisely because everyone knows it and no one really argues about it.
1987 ISDA and Automatic Early Termination
Note, for students of history, Automatic Early Termination is (was, right? Oh, come on, guys —) problematic under the 1987 ISDA.
- ↑ This, by the way, is an ISDA In-joke. In fact, Cross Default is pretty much pointless, a fact that every ISDA ninja and credit officer knows, but none will admit on the record. It is the love that dare not speak its name.