Terminating derivatives entered into under an ISDA Master Agreement


Published by a UUÂãÁÄÖ±²¥ Banking & Finance expert
Practice notes
Bank Stability

Terminating derivatives entered into under an ISDA Master Agreement


Published by a UUÂãÁÄÖ±²¥ Banking & Finance expert

Practice notes
Bank Stability
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Terminating Derivatives

If an ISDA contract is going to be terminated, it is important to ensure that the terms of the ISDA Master Agreement that relate to termination are followed to the letter. Any error can lead to the termination not having been effected properly and being invalid.

Section 6 (Early Termination) of the ISDA Master Agreement sets out the consequences of an occurrence of an Event of default or Termination Event as described in Section 5 (Events of Default and Termination Events) of the ISDA Master Agreement. In short, the difference between an Event of Default and Termination Event is that in an Event of Default there is a party that can be blamed, whereas generally in a Termination Event, the event just happened or was outside a party's control.

Section 6 also sets out how the close-out netting mechanism operates following the occurrence of an Event of Default or Termination Event.

For more information, see Practice Notes: Scope of the ISDA Master Agreement

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Key definition:
Derivatives definition
What does Derivatives mean?

Financial instruments, such as futures and options, whose value is derived from that of underlying securities.

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