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| {{isdaprov|Automatic Early Termination}} is an odd and misunderstood concept which exists in Section {{isdaprov|6(a)}} {{isdaprov|Right to Terminate Following Event of Default}} of the {{isdama}}. As is so much in the {{isdama}}, it’s all about '''[[Netting]]'''. Where a jurisdiction suspends terms of contracts in a period of formal insolvency, the idea is to have the ISDA break before that suspension kicks in — so close-out netting works. | | {{isda Automatic Early Termination summ|isdaprov}} |
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| {{isdaprov|AET}} is thus only triggered by ''certain'' events under the {{isdaprov|Bankruptcy}} [[Events of Default - ISDA Provision|event of default]] — formal bankruptcy procedures — and not by economic events that tend to indicate insolvency (such as an inability to pay debts as they fall due, [[technical insolvency]] or the exercise of security. Nor does it apply to other Events of Default.
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| [[Automatic early termination]] (“{{tag|AET}}”) protects in jurisdictions (e.g., [[Germany]] and [[Switzerland]]) where certain bankruptcy events would allow a [[liquidator]] to “[[cherry-pick]]” those {{isdaprov|transaction}}s it wishes to honour (those which are [[in-the-money]] to the [[defaulting party]]) and avoid those where the {{isdaprov|defaulting party}} is [[out-of-the-money]].
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| ''It is only really useful to a regulated financial institution which is incurs a capital charge if it doesn’t have a netting opinion''.
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