Second Method

How Did the Elimination of the First Method in the 2002 ISDA Master Agreement Affect Market Liquidity?

The 2002 ISDA Agreement's elimination of the First Method enhanced market liquidity by replacing uncertain "walkaway" clauses with a predictable, fair-value close-out standard.

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▴Commercial Reasonableness

▴Derivatives Close-Out

What Are the Practical Differences between the 1992 and 2002 ISDA Close-Out Protocols?

The 2002 ISDA protocol replaces subjective valuation with an objective standard of commercial reasonableness for close-outs.

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▴Market Data

▴Systemic Risk

▴Second Method

How Does the Close out Amount Calculation Promote Greater Objectivity than the Previous First Method?

The Close-Out Amount mandates a valuation based on objective, market-driven replacement costs, ensuring a fair and defensible process.

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▴Counterparty Risk

▴Early Termination Date

What Are the Key Differences between the 1992 and 2002 ISDA Master Agreements regarding Close-Out Amounts?

The 2002 ISDA replaces the 1992's rigid, optional close-out methods with a single, flexible "Close-out Amount" based on commercial reasonableness.

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▴Close-Out Netting

▴Full Two-Way Payments

▴2002 ISDA Master Agreement

To What Extent Did the Elimination of the “First Method” Impact Credit Negotiations in Derivatives Trading?

The elimination of the "First Method" transformed derivatives credit risk from a punitive, asymmetric model into a balanced, market-based system requiring sophisticated collateral and valuation management.

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▴First Method

▴Limited Two-Way Payments

Why Was the First Method of Payment Abolished in the 2002 ISDA Agreement?

The First Method was abolished because its "walkaway" clause created systemic risk and was legally unenforceable in bankruptcy.

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▴2002 ISDA Master Agreement

▴Early Termination Date

What Are the Key Differences between the 1992 and 2002 ISDA Close out Calculation Methods?

The 2002 ISDA replaces the 1992's optional methods with a single, objectively reasonable "Close-out Amount."

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▴Determining Party

▴Two-Way Payment

Why Was the “First Method” or One-Way Payment System Removed in the 2002 ISDA Master Agreement?

The First Method was removed to enforce equitable two-way payments, align with regulatory capital rules, and enhance overall market stability.

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▴Hedge Fund

▴Master Agreement

How Does the 2002 ISDA Master Agreement Differ from the 1992 Version in a Default Scenario?

The 2002 ISDA Agreement replaces the 1992 version's elective default mechanisms with a unified, commercially reasonable Close-Out Amount.

▴Commercially Reasonable

▴Master Agreement

What Are the Primary Differences in Valuation between the 1992 and 2002 ISDA Master Agreements?

The 2002 ISDA replaced the 1992's ambiguous dual valuation methods with a single, objective 'Close-Out Amount' for greater systemic stability.

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▴Special Situations

▴Early Termination

In What Scenarios Might a Firm Prefer a 1992 ISDA over the More Protective 2002 Version?

A firm may prefer the 1992 ISDA to leverage its subjective close-out mechanics as a tool for strategic advantage in specific counterparty relationships.

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▴Commercially Reasonable Procedures

▴Calculating Party

What Are the Key Differences between the 1992 and 2002 Isda Master Agreements regarding Close-Out Valuation?

The 2002 ISDA Agreement mandates an objective, two-way close-out valuation, replacing the 1992's subjective and potentially one-way system.

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▴Early Termination

▴Counterparty Credit Risk

What Are the Primary Economic Consequences of a Close-Out under the 1992 versus the 2002 ISDA Master Agreement?

The 2002 ISDA imposes a stricter, more objective valuation standard, leading to more predictable but procedurally demanding close-outs.

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▴Counterparty Risk

▴OTC Derivatives

What Are the Key Differences between the 1992 and 2002 Isda Close-Out Protocols?

The 2002 ISDA protocol mandates a single, objective "Close-out Amount," replacing the 1992 version's subjective and varied options.

▴Loss Calculation

▴Second Method

▴Early Termination Date

What Are the Key Differences in the Close-Out Calculation Methodology between the 1992 and 2002 Isda Agreements?

The 2002 ISDA Agreement replaces the 1992's rigid, elective methods with a single, flexible "Close-out Amount" governed by objectivity.

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▴Systemic Risk

▴ISDA Master Agreement

▴Close-Out Amount

Why Was the First Method Payment Option Removed in the 2002 ISDA Agreement?

The First Method was removed to replace its legally uncertain 'walkaway' clause with a robust protocol ensuring netting efficiency and systemic stability.

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