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An amendment to section 2(a)(iii) of the International Swaps and Derivatives Association (ISDA) Master Agreement has been published which can be used to add a time limit to be able to withhold payments or deliveries in cases of default. Guy Usher, partner in the derivatives group at Fieldfisher, looks at what the amendment will mean in practice.
Press Release: Amendment to the ISDA Master Agreement for use in relation to Section 2(a)(iii) and explanatory memorandum.
Market participants can use the form of amendment agreement to amend their ISDA Master Agreements to insert a time limit on the operation of section 2(a)(iii) in circumstances where an event of a default has occurred in respect of one of the parties. The amendment agreement can be used with either the 1992 ISDA Master Agreement (Multicurrency—Cross Border) or the ISDA 2002 Master Agreement.
There is a long background to the publication of the ISDA amendment to section 2(a)(iii) of the ISDA Master Agreement (1992 and 2002 versions). The issue which the wording now addresses was first highlighted in the Australian case of Enron v TXU in 2003. Following that case there were views expressed that section 2(a)(iii) might amount to a ‘walk-away’ provision for the purposes of the Basel Capital Accords. That issue was referred by the Bank of England to the Financial Markets Law Commission in 2004/5. The New York Fed also participated in the debate but th
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1.Banking and finance lawyer with experience in derivatives, debt capital markets, securitisation and structured finance in London and Paris
2.Likes ballet, playing the harp and holidays
3.Thinks the law is always changing!
Emma trained and qualified at Allen & Overy LLP and worked in their derivatives and structured finance teams in London and Paris. She then joined the foreign exchange prime brokerage legal team at Deutsche Bank before spending 4 ½ years with Crédit Agricole CIB advising the fixed income and derivatives desk.
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