The framework agreement and timetable define the reasons why one party may impose the closure of covered transactions due to the appearance of a termination event by the other party. Standard termination events include defaults or bankruptcy. Other closing events that can be added to the calendar include a downgrade of credit data below a specified level. The parties try to limit this responsibility by including “unconfident” representations in their agreements, so that each party does not rely on the other and makes its own independent decisions. While these submissions are helpful, they would not prevent business practices or other measures if a party`s conduct was inconsistent with that presentation. Then there is a question of determination itself. For the purposes of calculating the final amount, the Act uses the concept of a party`s “bond value” in a derivatives transaction, and follows the statement that the method of determining that value should be defined by the clearing agreement. The “value of commitments” is in turn defined as the “monetary equivalent” of the commitments concerned. Here too, for reasons of total clarity, a little more explanation would have been useful in the law itself. Nevertheless, we believe that the approach to loss (costs) and gains when replacing or obtaining an economic equivalent, as used in the definition of the amount of the close-out under the ISDA framework, should be covered. The provision of the Act, which gives the parties the freedom to define in the compensation agreement how they intend to determine the “value of obligations,” is a comfort in this regard.
For the same reason, we believe that unpaid amounts should also be accounted for based on the legal “value of bonds.” The master`s agreement was updated in 2002 (known as ISDA Masteragrement 2002). The updated phase of the 1992 agreement has its roots in the succession of crises that affected global financial markets in the late 1990s. These events, including the liquidation of Hong Kong broker Peregrine Investments Holdings Holdings and the 1998 Russian financial crisis, tested ISDA documentation to an extent unknown to date. Although the ISDA documentation withstood this test, ISDA decided to put in place a strategic review of its documentation to see what lessons could be learned from these events. This revision resulted in a complete update to the 1992 agreement, which culminated in the 2002 agreement.