Termination Currency - ISDA Provision

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ISDA Anatomy

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In a NutshellTM Section Termination Currency:

Termination Currency” means the Termination Currency specified in the Schedule if it is freely available, and failing that euro for English law-governed Agreements or US Dollars for New York law-governed Agreements.
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2002 ISDA full text of Section Termination Currency:

Termination Currency” means (a) if a Termination Currency is specified in the Schedule and that currency is freely available, that currency, and (b) otherwise, euro if this Agreement is expressed to be governed by English law or United States Dollars if this Agreement is expressed to be governed by the laws of the State of New York.
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Click here for the text of Section Termination Currency in the 1992 ISDA


Resources Wikitext | Nutshell wikitext | 1992 ISDA wikitext | 2002 vs 1992 Showdown | 2006 ISDA Definitions | 2008 ISDA | JC’s ISDA code project
Navigation Preamble | 1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9 | 10 | 11 | 12 | 13 | 14
Events of Default: 5(a)(i) Failure to Pay or Deliver5(a)(ii) Breach of Agreement5(a)(iii) Credit Support Default5(a)(iv) Misrepresentation5(a)(v) Default Under Specified Transaction5(a)(vi) Cross Default5(a)(vii) Bankruptcy5(a)(viii) Merger without Assumption
Termination Events: 5(b)(i) Illegality5(b)(ii) Force Majeure Event5(b)(iii) Tax Event5(b)(iv) Tax Event Upon Merger5(b)(v) Credit Event Upon Merger5(b)(vi) Additional Termination Event

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Compare and contrast with the Base Currency in the CSA. Ideally, you’d want them to be the same. Ten points for style if you can think of a reason for having different ones. Goldman probably could.

So what is this all about, then? Well, swap transactions by nature are likely to have different currencies — cross-currency swaps are, anyway — and if (heaven forfend) you should be closing out a whole portfolio of them, then you will have boil everything down, at some point, to a single currency. Some are better than others — a G7 ones are more liquid and less volatile than others, and each counterparty will have a preference for its own home currency — an investment fund, the base currency of the fund.

The sort of thing you might expect to see specified in the schedule is this:

Termination Currency” means one of the currencies in which payments are required to be made under a Terminated Transaction selected by the Non-defaulting Party or the non-Affected Party, as the case may be, or where there are two Affected Parties, as agreed between them or, if not agreed, or if the selected currency so is not freely available, [U.S. Dollars][Euro][Pounds Sterling].

The Template:1992 had no fallback Termination Currency for those parties who forget to agree one in their schedule: an impressive design flaw. ISDA’s crack drafting squadTM corrected this for the 2002 ISDA, which assumes EUR or USD (depending on the governing law you select) if you haven’t agreed something else. This means a 2002 version LFC does not need to specify a Termination Currency. Not that you’d ever use a long form confirmation in this day and age, of course.

The Termination Currency concept can be applied to the termination and close-out of single Transactions or groups of Transactions, so it does make sense for it to be "a currency in which payments are due to be made under the relevant Terminated Transaction" - or some such thing.