Physical settlement fallback procedures

Indra Rajaratnam

25.1 INTRODUCTION

As seen in the previous chapter, a buyer may continue to attempt delivery after the physical settlement date. In this connection, there are also various physical settlement fallback procedures that are contemplated under the architecture of the 2014 ISDA Credit Derivatives Definitions (henceforth the “2014 Definitions”; see International Swaps and Derivatives Association Inc. 2014b) which have been designed to enable a close-out of a transaction to occur where there has been a failure by a buyer to complete delivery by the physical settlement date. This chapter examines each of these physical settlement fallback procedures, the implications for a transaction where such procedures apply, and the timing as to when such procedures would become operative. In the concluding section, the 60 business day “Cap on Settlement”, which has the effect of truncating the physical settlement timeline and giving rise to a termination date in a transaction, is examined.

25.2 DELIVERY AFTER THE PHYSICAL SETTLEMENT DATE

In Chapter 24 (on Physical settlement), it was shown that the difficulties in meeting delivery deadlines can arise for a variety of reasons, and this can make it

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