Two Affected Parties - ISDA Provision

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2002 ISDA Master Agreement
A Jolly Contrarian owner’s manual™

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Section 6(b)(iii) in a Nutshell

Use at your own risk, campers!
6(b)(iii) Two Affected Parties. If there is a Tax Event with two Affected Parties, each must use all reasonable efforts agree within 30 days after the Termination Event Notice to avoid it.

Full text of Section 6(b)(iii)

6(b)(iii) Two Affected Parties. If a Tax Event occurs and there are two Affected Parties, each party will use all reasonable efforts to reach agreement within 30 days after notice of such occurrence is given under Section 6(b)(i) to avoid that Termination Event.

Related agreements and comparisons

Related Agreements
Click here for the text of Section 6(b)(iii) in the 1992 ISDA
Click to compare this section in the 1992 ISDA and 2002 ISDA.

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Content and comparisons

Be careful here: Under the 1992 ISDA, if your Failure to Pay is also an Illegality it is treated as an Illegality: if there are two Affected Parties you will face a significant delay when closing out. A bit of a trick for young players.

Note also that reference to Illegality has been excised from the 2002 ISDA version. They changed this because, in practice, it turned out to too be hard to implement a transfer or amendment after an Illegality. Folks realised that if an Illegality happens you don’t want to have to wait 30 days to terminate, especially if you can’t rely on 2(a)(iii) to withhold payments in the meantime.



Handwaving appeals to one another’s good natures with this talk of reasonableness and, of course, both parties will probably be incentivised to keep the trade on foot if some unfortunate tax eventuality comes about — seeing as they were incentivised enough to start it —but ultimately, this is an agreement to agree, however you dress it up, and is as contractually enforceable as one. That is, not very.


General discussion

Section 6(b)(iii) Two Affected Parties

Well, if they are both Affected Parties they can do their best to agree a fix, but this is what all eagle-eyed members of legal squad will recognise as an agreement to agree.


See also