# How Does the 2002 ISDA'S'Close-out Amount' Affect Valuation Disputes in Practice? ▴ Question

**Published:** 2025-08-12
**Categories:** Question

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## Concept

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## From Prescriptive Rule to Guiding Principle

The introduction of the “Close-out Amount” in the [2002 ISDA Master Agreement](https://prime.greeks.live/area/2002-isda-master-agreement/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) marks a fundamental recalibration of the mechanics of [derivatives termination](https://prime.greeks.live/area/derivatives-termination/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite). It moves the entire process away from the rigid, externally-focused valuation methods of the 1992 Agreement ▴ specifically Market Quotation and Loss ▴ towards a unified, principles-based framework. This was a deliberate architectural choice.

The core of the 2002 framework rests upon a single, potent concept ▴ “[commercial reasonableness](https://prime.greeks.live/question/what-are-the-practical-implications-of-the-shift-to-commercial-reasonableness/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite).” Understanding this transition is the first step to grasping why and how [valuation disputes](https://prime.greeks.live/question/how-can-a-buy-sell-agreement-prevent-costly-shareholder-valuation-disputes-in-the-future/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) arise in modern derivatives practice. The system was redesigned to inject flexibility into the close-out process, particularly for complex or illiquid transactions where obtaining multiple, firm quotes from reference market-makers was impractical or distortionary.

Under the preceding [1992 ISDA Master Agreement](https://prime.greeks.live/area/1992-isda-master-agreement/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite), the non-defaulting party had two distinct paths for valuation. The first, Market Quotation, was a procedural checklist requiring the party to obtain quotes from a specified number of dealers for a [replacement transaction](https://prime.greeks.live/area/replacement-transaction/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite). The second, Loss, was a broader indemnity-style calculation of the party’s total losses resulting from the termination. The choice between them, and the strict procedures for Market Quotation, often became the primary source of legal challenges.

Disputes centered on whether the process was followed correctly ▴ were the right dealers contacted? Were the quotes obtained in the specified timeframe? The valuation itself, being an average of external inputs, was less frequently the direct subject of the dispute.

> The 2002 ISDA’s ‘Close-out Amount’ shifts the focal point of disputes from procedural compliance to the substantive justification of the valuation itself.

The 2002 Agreement collapses these two avenues into the single Close-out Amount. This provision empowers the determining party to calculate its gains or losses using information it deems relevant, including internal models, indicative quotes, and data from various sources. This grants significant flexibility, but it comes with a higher standard of conduct. The determining party must act in good faith and “use [commercially reasonable](https://prime.greeks.live/area/commercially-reasonable/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) procedures in order to produce a [commercially reasonable result](https://prime.greeks.live/question/what-constitutes-a-commercially-unreasonable-result-in-a-derivatives-close-out-scenario/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite).” This language introduces a dual obligation ▴ the process must be sound, and the outcome must be fair.

This shift from a bright-line procedural test to a more subjective, principles-based standard is the primary reason the nature of valuation disputes has transformed so profoundly. The central question is no longer “Did you follow the rules?” but rather “Can you defend your judgment?”

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## The Objective Standard of Reasonableness

A critical evolution embedded within the 2002 Agreement is the elevation of the standard of conduct from rationality to objective reasonableness. The 1992 Agreement’s “Loss” calculation was generally interpreted by courts as requiring the [determining party](https://prime.greeks.live/question/can-a-determining-party-unilaterally-revise-a-close-out-calculation-after-it-has-been-issued/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) to act rationally, a relatively low bar to clear. A decision is rational as long as it is not arbitrary or perverse. The 2002 Agreement’s “commercially reasonable” standard is a more demanding, objective test.

This means a court will assess whether the procedures and the resulting amount align with what a reasonable market participant, in the same position, would have done. This higher standard places a significant evidentiary burden on the determining party to document and justify its methodology, assumptions, and the data inputs it used. The flexibility afforded by the [Close-out Amount](https://prime.greeks.live/area/close-out-amount/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) is not a license for arbitrary valuation; it is a mandate for a rigorous, defensible, and transparent internal process.

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## Strategy

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## The Evidentiary Burden of Internal Valuation

The strategic implications of the [2002 ISDA](https://prime.greeks.live/area/2002-isda/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite)’s Close-out Amount are centered on the operational and documentary shift from external validation to internal justification. For a [non-defaulting party](https://prime.greeks.live/question/in-what-scenarios-might-a-non-defaulting-party-strategically-prefer-the-standard-close-out-process-over-aet/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite), terminating a derivatives portfolio is no longer a matter of executing a prescribed external polling process. It is an exercise in building a robust, defensible case for an internally generated valuation.

The primary strategic challenge lies in anticipating and neutralizing potential disputes by creating a comprehensive and contemporaneous record of the valuation process. The “commercial reasonableness” standard effectively requires the determining party to act as its own expert witness from the moment of termination.

A successful strategy recognizes that a dispute will not focus on a single number, but on the entire architecture of the calculation. This includes the models used, the inputs selected, and the adjustments made for factors like liquidity, credit risk, and funding costs. The core of any dispute will probe the choices made by the determining party. Why was one valuation model chosen over another?

How were illiquid positions marked where no direct [market data](https://prime.greeks.live/area/market-data/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) was available? How were administrative and hedging costs quantified? Each of these questions represents a potential point of attack for a defaulting party seeking to challenge the final close-out figure. Therefore, the strategy must be preemptive, focusing on creating an unassailable audit trail that demonstrates a rigorous and fair process.

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## Comparative Framework of Valuation Disputes

The table below contrasts the typical grounds for dispute under the 1992 and 2002 ISDA Master Agreements, illustrating the strategic shift from procedural to substantive arguments.

### Table 1 ▴ Evolution of Dispute Grounds from 1992 to 2002 ISDA Agreements

| Dispute Area | 1992 ISDA Master Agreement (Market Quotation/Loss) | 2002 ISDA Master Agreement (Close-out Amount) |
| --- | --- | --- |
| Primary Legal Challenge | Procedural failure (e.g. insufficient quotes, wrong dealers contacted, incorrect timing). | Substantive unreasonableness (e.g. flawed model, inappropriate inputs, unreasonable assumptions). |
| Basis of Valuation | Strict reliance on external quotes from Reference Market-Makers or a formulaic calculation of Loss. | Flexible use of internal models, indicative quotes, replacement cost, and other relevant information. |
| Evidentiary Burden | Proof of adherence to the prescribed quotation-gathering process. | Proof of a commercially reasonable process and a commercially reasonable result, supported by detailed records. |
| Role of Third Parties | Central role for Reference Market-Makers as the source of binding valuations. | Third-party quotes are one of many potential inputs; they are not dispositive. |
| Judicial Scrutiny | Review of whether the contractual procedure was followed. | Objective assessment of the commercial reasonableness of the entire valuation methodology. |

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## Preemptive Documentation and Process Integrity

Given the focus on the reasonableness of the internal process, a determining party must implement a clear, consistent, and well-documented valuation strategy. This involves several key operational steps designed to build a defensible position from the outset.

- **Contemporaneous Record-Keeping** ▴ All decisions, data sources, and calculations must be documented as they occur. This includes minutes of internal meetings, screenshots of market data, records of conversations about [indicative quotes](https://prime.greeks.live/question/can-indicative-quotes-be-used-when-calculating-loss-under-the-1992-isda-master-agreement/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite), and detailed explanations for the choice of valuation models. 

- **Use of Consistent Methodologies** ▴ The valuation models and procedures used for the close-out calculation should, where possible, be consistent with those used by the firm in its regular course of business for valuing similar transactions. Using a novel or ad-hoc model specifically for a close-out can raise suspicions of manipulation. 

- **Market Soundings** ▴ While not mandatory, obtaining indicative quotes from third parties, even if non-binding, serves as a valuable cross-check and demonstrates a good-faith effort to ground the valuation in prevailing market conditions. 

- **Internal Governance and Sign-off** ▴ The close-out calculation should be subject to internal review and approval by appropriate risk management or valuation committees. This demonstrates that the determination was not the act of a single, potentially biased individual but the result of a considered institutional process. 

- **Detailed Close-out Statement** ▴ The statement provided to the defaulting party should be more than just a single number. It should provide a clear, comprehensible summary of how the Close-out Amount was calculated, demonstrating transparency and bolstering the perception of reasonableness. 

By adopting these strategic measures, a non-defaulting party can transform the [close-out process](https://prime.greeks.live/question/in-what-scenarios-might-a-non-defaulting-party-strategically-prefer-the-standard-close-out-process-over-aet/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) from a potential liability into a demonstration of institutional rigor, significantly mitigating the risk of a successful valuation challenge.

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## Execution

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## Operationalizing the Close out Calculation

The execution of a close-out under the 2002 [ISDA Master Agreement](https://prime.greeks.live/area/isda-master-agreement/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) is a time-sensitive and procedurally intensive operation. It demands a coordinated effort between a firm’s legal, trading, risk, and operations departments. The objective is to produce a valuation that is not only accurate but also fully defensible under the “commercially reasonable” standard. The process begins immediately upon an Event of Default and the subsequent designation of an [Early Termination Date](https://prime.greeks.live/area/early-termination-date/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite).

> A flawed execution of the close-out process can undermine even the most sophisticated valuation models, exposing the determining party to significant legal and financial risk.

The determining party is afforded a window, beginning on the [Early Termination](https://prime.greeks.live/question/what-are-the-primary-legal-risks-mitigated-by-electing-for-automatic-early-termination/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) Date, to perform its calculation. The agreement specifies that the determination should be made “as of” the Early Termination Date, but allows for it to be done as soon as reasonably practicable thereafter if determination on the date itself is not feasible. This provides a necessary buffer to gather complex information, especially in volatile markets or for illiquid portfolios. However, this flexibility is not infinite, and an unreasonable delay can itself become a point of dispute.

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## A Step by Step Procedural Protocol

A robust execution protocol for calculating the Close-out Amount follows a structured sequence of actions. Each step must be meticulously documented to form the evidentiary basis for the final determination.

- **Confirmation of Early Termination** ▴ Upon a trigger event, the non-defaulting party issues a notice designating an Early Termination Date for all outstanding transactions under the agreement. This action crystallizes the portfolio to be valued. 

- **Portfolio Reconciliation** ▴ An immediate and final reconciliation of all trades covered by the ISDA [Master Agreement](https://prime.greeks.live/question/in-what-ways-does-the-single-agreement-principle-of-the-isda-master-agreement-differ-from-traditional-contract-law/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) is performed with the counterparty to ensure there are no disagreements on the population of transactions being terminated. 

- **Initial Mark-to-Market Snapshot** ▴ As of the Early Termination Date, the firm’s valuation group takes a snapshot of the portfolio’s mark-to-market (or mark-to-model) value based on existing, in-house methodologies. This serves as the initial baseline. 

- **Information Gathering Phase** ▴ The determining party gathers a wide range of information to support its valuation. This may include:

<li>Indicative or firm quotes for replacement transactions from other dealers.

- Relevant market data (e.g. yield curves, volatility surfaces, credit spreads).

- Information on the cost of unwinding any internal or external hedges related to the terminated portfolio.

- Analysis of funding costs or benefits associated with the terminated cash flows.

</li>
- **Valuation Adjustment Analysis** ▴ The baseline mark-to-market is refined with several crucial valuation adjustments (XVAs). This is often the most contentious area of the calculation. The determining party must reasonably quantify factors such as its own cost of funding (FVA) and the credit risk of the counterparty (CVA) that was embedded in the trades. 

- **Final Calculation and Review** ▴ The final Close-out Amount is calculated, incorporating all costs, losses, gains, and adjustments. This calculation is then subjected to a formal internal review and sign-off process. 

- **Issuance of the Close-out Statement** ▴ A detailed statement is prepared and delivered to the defaulting party, outlining the final Close-out Amount due and providing sufficient detail to show how it was calculated. 

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## A Quantitative Dissection of a Dispute

Valuation disputes often crystallize around specific quantitative inputs. The following table illustrates a hypothetical dispute over the close-out of a portfolio of interest rate swaps, showing how differing assumptions on key valuation adjustments can lead to a significant disagreement in the final amount.

### Table 2 ▴ Hypothetical Close-out Amount Dispute Analysis

| Valuation Component | Non-Defaulting Party’s (NDP) Calculation | Defaulting Party’s (DP) Challenge | Basis of DP’s Challenge |
| --- | --- | --- | --- |
| Baseline Mark-to-Market (MtM) | $10,000,000 | $9,800,000 | Disputes the mid-market curve used by the NDP, arguing for a less favorable curve. |
| Cost of Replacing Hedges | $500,000 | $250,000 | Alleges the NDP’s new hedges are overly conservative and not true like-for-like replacements. |
| Credit Valuation Adjustment (CVA) | $0 (DP is in default) | ($200,000) | Argues that some residual value of its credit should be considered, or that the CVA was miscalculated pre-default. |
| Funding Valuation Adjustment (FVA) | $300,000 | $100,000 | Claims the NDP is using its own high cost of funds, which is not commercially reasonable in the broader market. |
| Administrative Costs | $50,000 | $10,000 | Contends the claimed administrative costs are unsubstantiated and excessive. |
| Total Close-out Amount Claimed | $10,850,000 | $9,960,000 | A dispute of $890,000 based on differing “reasonable” assumptions. |

This table demonstrates how the flexibility of the Close-out Amount calculation creates multiple avenues for disagreement. The dispute is no longer about whether a quote was obtained from Dealer X, but about the nuanced assumptions underpinning the entire valuation model. A determining party must be prepared to defend every cell in its calculation with robust evidence and a clear, commercially reasonable justification.

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## References

- Firth, Simon. _Derivatives ▴ Law and Practice._ Sweet & Maxwell, 2004.

- Grove, Richard. “Valuation in the context of derivatives litigation.” _P.R.I.M.E. Finance_, 2017.

- Lehman Brothers Special Financing Inc. v National Power Corporation & Anor EWHC 487 (Comm).

- International Swaps and Derivatives Association. _2002 ISDA Master Agreement._ ISDA, 2002.

- Enron Australia Finance Pty Ltd v Integral Energy Australia NSWSC 1166.

- Flavell, Antony. _A-Z of Swaps and Financial Derivatives._ Legis Group, 2010.

- Mengle, David C. “The ISDA Master Agreement ▴ A Practical Guide.” _Financial Practice and Education_, vol. 12, no. 2, 2002, pp. 165-75.

- Henderson, Schuyler K. _Henderson on Derivatives._ 2nd ed. LexisNexis, 2011.

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## Reflection

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## Valuation as a Reflection of Institutional Integrity

The framework of the 2002 ISDA Close-out Amount does more than simply provide a mechanism for settling terminated trades. It functions as an unsparing diagnostic of a firm’s internal valuation capabilities and operational discipline. The requirement to produce a commercially reasonable result under potential legal scrutiny transforms the close-out process from a back-office task into a critical stress test of the firm’s entire risk management architecture. The process reveals the true robustness of a firm’s models, the quality of its market data infrastructure, and the integrity of its internal governance.

Ultimately, navigating this process successfully is a matter of institutional preparedness. The principles of good faith and commercial reasonableness are not abstract legal ideals; they are the tangible outcomes of a well-structured, evidence-based, and consistently applied valuation protocol. A firm that can confidently defend its Close-out Amount calculation is a firm that has already mastered the more fundamental challenge of understanding and quantifying its own risks. The knowledge gained through this examination should therefore be viewed as a component in a larger system of intelligence, where the ability to justify value is synonymous with the ability to manage it effectively.

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## Glossary

<a href="https://prime.greeks.live/area/2002-isda-master-agreement/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
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## 2002 Isda Master Agreement

Meaning ▴ The 2002 ISDA Master Agreement represents a standardized bilateral contractual framework for over-the-counter (OTC) derivatives transactions. </a><a href="https://prime.greeks.live/area/derivatives-termination/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
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## Derivatives Termination

Meaning ▴ Derivatives termination refers to the contractual or operational process of extinguishing a derivatives obligation before its scheduled maturity date. </a><a href="https://prime.greeks.live/question/what-are-the-practical-implications-of-the-shift-to-commercial-reasonableness/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
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## Commercial Reasonableness

The shift to commercial reasonableness installs a dynamic, context-aware protocol for managing contractual risk and optimizing outcomes. </a><a href="https://prime.greeks.live/question/how-can-a-buy-sell-agreement-prevent-costly-shareholder-valuation-disputes-in-the-future/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
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## Valuation Disputes

A buy-sell agreement prevents valuation disputes by creating a binding, pre-negotiated protocol for pricing and transferring shares. </a><a href="https://prime.greeks.live/area/1992-isda-master-agreement/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
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## 1992 Isda Master Agreement

Meaning ▴ The 1992 ISDA Master Agreement is a standardized bilateral contract document published by the International Swaps and Derivatives Association, serving as the primary legal framework for over-the-counter derivative transactions between two parties. </a><a href="https://prime.greeks.live/area/replacement-transaction/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![Intricate circuit boards and a precision metallic component depict the core technological infrastructure for Institutional Digital Asset Derivatives trading. This embodies high-fidelity execution and atomic settlement through sophisticated market microstructure, facilitating RFQ protocols for private quotation and block trade liquidity within a Crypto Derivatives OS](https://options.greeks.live/wp-content/uploads/2025/08/institutional-crypto-derivatives-execution-system-microstructure.jpg)

## Replacement Transaction

Meaning ▴ A Replacement Transaction refers to the atomic operation of canceling an existing active order within a trading system and simultaneously submitting a new order to the market, typically to adjust parameters such as price, quantity, or execution venue. </a><a href="https://prime.greeks.live/question/what-constitutes-a-commercially-unreasonable-result-in-a-derivatives-close-out-scenario/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
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## Commercially Reasonable Result

A commercially unreasonable result in a derivatives close-out is a valuation that fails the test of objective market-based evidence. </a><a href="https://prime.greeks.live/area/commercially-reasonable/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![A robust, dark metallic platform, indicative of an institutional-grade execution management system. Its precise, machined components suggest high-fidelity execution for digital asset derivatives via RFQ protocols](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-derivatives-rfq-execution-platform-high-fidelity-price-discovery-and-atomic-settlement-infrastructure.jpg)

## Commercially Reasonable

Meaning ▴ Commercially Reasonable refers to actions, terms, or conditions that a prudent party would undertake or accept in a similar business context, aiming to achieve a desired outcome efficiently and effectively while considering prevailing market conditions, industry practices, and available alternatives. </a><a href="https://prime.greeks.live/question/can-a-determining-party-unilaterally-revise-a-close-out-calculation-after-it-has-been-issued/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![A smooth, off-white sphere rests within a meticulously engineered digital asset derivatives RFQ platform, featuring distinct teal and dark blue metallic components. This sophisticated market microstructure enables private quotation, high-fidelity execution, and optimized price discovery for institutional block trades, ensuring capital efficiency and best execution](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-derivatives-rfq-protocol-system-microstructure-core.jpg)

## Determining Party

A Determining Party cannot unilaterally revise a close-out calculation; the process is designed for binding finality. </a><a href="https://prime.greeks.live/area/close-out-amount/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![Geometric panels, light and dark, interlocked by a luminous diagonal, depict an institutional RFQ protocol for digital asset derivatives. Central nodes symbolize liquidity aggregation and price discovery within a Principal's execution management system, enabling high-fidelity execution and atomic settlement in market microstructure](https://options.greeks.live/wp-content/uploads/2025/08/institutional-digital-asset-derivatives-rfq-protocol-execution-engine-1.jpg)

## Close-Out Amount

Meaning ▴ The Close-Out Amount represents the definitive financial value required to terminate a derivatives contract or position, typically calculated upon a default event or a pre-defined termination trigger. </a><a href="https://prime.greeks.live/question/in-what-scenarios-might-a-non-defaulting-party-strategically-prefer-the-standard-close-out-process-over-aet/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![A sophisticated, multi-layered trading interface, embodying an Execution Management System EMS, showcases institutional-grade digital asset derivatives execution. Its sleek design implies high-fidelity execution and low-latency processing for RFQ protocols, enabling price discovery and managing multi-leg spreads with capital efficiency across diverse liquidity pools](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-derivatives-trading-platform-market-microstructure.jpg)

## Non-Defaulting Party

Preferring standard close-out is a strategic decision to exert manual control over valuation and timing in complex market or legal environments. </a><a href="https://prime.greeks.live/area/2002-isda/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![Two intersecting stylized instruments over a central blue sphere, divided by diagonal planes. This visualizes sophisticated RFQ protocols for institutional digital asset derivatives, optimizing price discovery and managing counterparty risk](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-derivatives-rfq-protocols-high-fidelity-execution-2.jpg)

## 2002 Isda

Meaning ▴ The 2002 ISDA Master Agreement constitutes a standardized contractual framework, widely adopted within the over-the-counter (OTC) derivatives market, establishing foundational terms for bilateral derivatives transactions. </a><a href="https://prime.greeks.live/area/market-data/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![Stacked, glossy modular components depict an institutional-grade Digital Asset Derivatives platform. Layers signify RFQ protocol orchestration, high-fidelity execution, and liquidity aggregation](https://options.greeks.live/wp-content/uploads/2025/07/layered-digital-asset-derivatives-rfq-protocol-stack-for-prime-brokerage.jpg)

## Market Data

Meaning ▴ Market Data comprises the real-time or historical pricing and trading information for financial instruments, encompassing bid and ask quotes, last trade prices, cumulative volume, and order book depth. </a><a href="https://prime.greeks.live/question/can-indicative-quotes-be-used-when-calculating-loss-under-the-1992-isda-master-agreement/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![Sleek, domed institutional-grade interface with glowing green and blue indicators highlights active RFQ protocols and price discovery. This signifies high-fidelity execution within a Prime RFQ for digital asset derivatives, ensuring real-time liquidity and capital efficiency](https://options.greeks.live/wp-content/uploads/2025/08/institutional-digital-asset-derivatives-rfq-prime-os-execution-interface.jpg)

## Indicative Quotes

Indicative quotes are permissible inputs for Loss calculations under the 1992 ISDA, provided their use adheres to a defensible, rational process. </a><a href="https://prime.greeks.live/question/in-what-scenarios-might-a-non-defaulting-party-strategically-prefer-the-standard-close-out-process-over-aet/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![A precision-engineered metallic component with a central circular mechanism, secured by fasteners, embodies a Prime RFQ engine. It drives institutional liquidity and high-fidelity execution for digital asset derivatives, facilitating atomic settlement of block trades and private quotation within market microstructure](https://options.greeks.live/wp-content/uploads/2025/07/precision-engineered-institutional-digital-asset-derivatives-platform-rfq-engine-for-high-fidelity-execution-and-atomic-settlement-of-block-trades.jpg)

## Close-Out Process

Preferring standard close-out is a strategic decision to exert manual control over valuation and timing in complex market or legal environments. </a><a href="https://prime.greeks.live/area/early-termination-date/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![A sleek, multi-layered device, possibly a control knob, with cream, navy, and metallic accents, against a dark background. This represents a Prime RFQ interface for Institutional Digital Asset Derivatives](https://options.greeks.live/wp-content/uploads/2025/07/precision-control-interface-for-institutional-digital-asset-derivatives-rfq-protocols-and-prime-os.jpg)

## Early Termination Date

Meaning ▴ The Early Termination Date specifies a pre-agreed date or a date triggered by specific events, upon which a derivative contract or financial agreement concludes prior to its originally scheduled maturity. </a><a href="https://prime.greeks.live/area/isda-master-agreement/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![A sleek, multi-layered platform with a reflective blue dome represents an institutional grade Prime RFQ for digital asset derivatives. The glowing interstice symbolizes atomic settlement and capital efficiency](https://options.greeks.live/wp-content/uploads/2025/07/optimized-rfq-protocol-for-institutional-digital-asset-derivatives-1.jpg)

## Isda Master Agreement

Meaning ▴ The ISDA Master Agreement is a standardized contractual framework for privately negotiated over-the-counter (OTC) derivatives transactions, establishing common terms for a wide array of financial instruments. </a><a href="https://prime.greeks.live/question/what-are-the-primary-legal-risks-mitigated-by-electing-for-automatic-early-termination/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![An abstract visualization of a sophisticated institutional digital asset derivatives trading system. Intersecting transparent layers depict dynamic market microstructure, high-fidelity execution pathways, and liquidity aggregation for RFQ protocols](https://options.greeks.live/wp-content/uploads/2025/07/prime-os-institutional-digital-asset-derivatives-rfq-execution.jpg)

## Early Termination

Electing for Automatic Early Termination crystallizes net exposure upon a counterparty's bankruptcy, preempting legal stays and preserving netting benefits. </a><a href="https://prime.greeks.live/question/in-what-ways-does-the-single-agreement-principle-of-the-isda-master-agreement-differ-from-traditional-contract-law/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![Abstract visual representing an advanced RFQ system for institutional digital asset derivatives. It depicts a central principal platform orchestrating algorithmic execution across diverse liquidity pools, facilitating precise market microstructure interactions for best execution and potential atomic settlement](https://options.greeks.live/wp-content/uploads/2025/07/prime-os-rfq-platform-institutional-digital-asset-derivatives-ecosystem.jpg)

## Master Agreement

The ISDA's Single Agreement principle architects a unified risk entity, replacing severable contracts with one indivisible agreement to enable close-out netting. </a>

**Tags:** [Credit Valuation Adjustment](https://options.greeks.live/area/credit-valuation-adjustment/), [Early Termination Date](https://options.greeks.live/area/early-termination-date/), [2002 ISDA](https://options.greeks.live/area/2002-isda/), [1992 ISDA Master Agreement](https://options.greeks.live/area/1992-isda-master-agreement/), [Lehman Brothers Default](https://options.greeks.live/area/lehman-brothers-default/), [Market Quotation](https://options.greeks.live/area/market-quotation/)	

## Discover More

- 
### [How Does the 2002 ISDA Master Agreement Differ from the 1992 Version regarding Close-Out Calculations?](https://options.greeks.live/question/how-does-the-2002-isda-master-agreement-differ-from-the-1992-version-regarding-close-out-calculations/)
![A sleek, multi-layered digital asset derivatives platform highlights a teal sphere, symbolizing a core liquidity pool or atomic settlement node. The perforated white interface represents an RFQ protocol's aggregated inquiry points for multi-leg spread execution, reflecting precise market microstructure.](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-derivatives-rfq-core-execution-system.jpg)

The 2002 ISDA Agreement replaces the 1992's rigid/subjective methods with a single, objective standard of commercial reasonableness.

- 
### [What Constitutes a Commercially Reasonable Procedure in a Close-Out?](https://options.greeks.live/question/what-constitutes-a-commercially-reasonable-procedure-in-a-close-out/)
![An Institutional Grade RFQ Engine core for Digital Asset Derivatives. This Prime RFQ Intelligence Layer ensures High-Fidelity Execution, driving Optimal Price Discovery and Atomic Settlement for Aggregated Inquiries.](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-derivatives-rfq-engine-core-high-fidelity.jpg)

A commercially reasonable close-out is the systematic, good-faith execution of a defensible valuation to crystallize risk into a fair value.

- 
### [What Is the Difference between the 1992 and 2002 Isda Close out Provisions?](https://options.greeks.live/question/what-is-the-difference-between-the-1992-and-2002-isda-close-out-provisions-2/)
![A translucent teal dome, brimming with luminous particles, symbolizes a dynamic liquidity pool within an RFQ protocol. Precisely mounted metallic hardware signifies high-fidelity execution and the core intelligence layer for institutional digital asset derivatives, underpinned by granular market microstructure.](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-derivatives-rfq-protocol-core-intelligence-layer.jpg)

The 2002 ISDA replaced the 1992 version's subjective close-out methods with a single, objectively reasonable valuation protocol.

- 
### [What Are the Most Common Points of Contention in a Derivative Close-Out Valuation Dispute?](https://options.greeks.live/question/what-are-the-most-common-points-of-contention-in-a-derivative-close-out-valuation-dispute/)
![A central glowing blue mechanism with a precision reticle is encased by dark metallic panels. This symbolizes an institutional-grade Principal's operational framework for high-fidelity execution of digital asset derivatives. It embodies RFQ processing, enabling price discovery within a deep liquidity pool, optimizing market microstructure.](https://options.greeks.live/wp-content/uploads/2025/07/precision-core-enabling-institutional-digital-asset-derivatives-rfq-execution.jpg)

The core points of contention in a derivative close-out dispute center on the interpretation of "commercially reasonable" valuation.

- 
### [How Does the 2002 ISDA Close-Out Amount Calculation Handle Illiquid Transactions?](https://options.greeks.live/question/how-does-the-2002-isda-close-out-amount-calculation-handle-illiquid-transactions/)
![An abstract, multi-component digital infrastructure with a central lens and circuit patterns, embodying an Institutional Digital Asset Derivatives platform. This Prime RFQ enables High-Fidelity Execution via RFQ Protocol, optimizing Market Microstructure for Algorithmic Trading, Price Discovery, and Multi-Leg Spread.](https://options.greeks.live/wp-content/uploads/2025/08/institutional-grade-digital-asset-derivatives-trading-platform-powering-high-fidelity-execution-via-advanced-rfq-protocol-prime-os-intelligence-layer.jpg)

The 2002 ISDA framework provides a robust protocol for calculating termination values for illiquid assets by replacing rigid quotation requirements with a flexible, yet objectively verifiable, standard of commercial reasonableness.

- 
### [How Does the 2002 Isda Master Agreement Change the Standard for Calculating Close out Amounts?](https://options.greeks.live/question/how-does-the-2002-isda-master-agreement-change-the-standard-for-calculating-close-out-amounts-2/)
![A precise, multi-layered disk embodies a dynamic Volatility Surface or deep Liquidity Pool for Digital Asset Derivatives. Dual metallic probes symbolize Algorithmic Trading and RFQ protocol inquiries, driving Price Discovery and High-Fidelity Execution of Multi-Leg Spreads within a Principal's operational framework.](https://options.greeks.live/wp-content/uploads/2025/07/institutional-grade-rfq-protocol-mechanism-for-digital-asset-derivatives-price-discovery-and-high-fidelity-execution-via-prime-os.jpg)

The 2002 ISDA Agreement replaces a rigid, dual-method system with a single, flexible standard based on commercial reasonableness.

- 
### [What Are the Primary Differences in the Calculation of Early Termination Payments?](https://options.greeks.live/question/what-are-the-primary-differences-in-the-calculation-of-early-termination-payments/)
![A macro view reveals the intricate mechanical core of an institutional-grade system, symbolizing the market microstructure of digital asset derivatives trading. Interlocking components and a precision gear suggest high-fidelity execution and algorithmic trading within an RFQ protocol framework, enabling price discovery and liquidity aggregation for multi-leg spreads on a Prime RFQ.](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-derivatives-rfq-execution-system-precision-engine.jpg)

The primary difference is the shift from the 1992 ISDA's rigid, quote-based rules to the 2002 ISDA's flexible, principles-based Close-out Amount.

- 
### [What Is the Difference between the 1992 and 2002 Isda Close-Out Standards?](https://options.greeks.live/question/what-is-the-difference-between-the-1992-and-2002-isda-close-out-standards/)
![The abstract image visualizes a central Crypto Derivatives OS hub, precisely managing institutional trading workflows. Sharp, intersecting planes represent RFQ protocols extending to liquidity pools for options trading, ensuring high-fidelity execution and atomic settlement. This depicts market microstructure dynamics and capital efficiency within a secure prime brokerage environment.](https://options.greeks.live/wp-content/uploads/2025/07/rfq-protocols-for-institutional-digital-asset-derivatives-prime-os-execution.jpg)

The 2002 ISDA replaces the 1992 version's subjective close-out options with a single, objectively reasonable standard.

- 
### [How Did the 2002 Isda Master Agreement Attempt to Fix the 1992 Version’s Ambiguities?](https://options.greeks.live/question/how-did-the-2002-isda-master-agreement-attempt-to-fix-the-1992-versions-ambiguities/)
![An abstract composition of interlocking, precisely engineered metallic plates represents a sophisticated institutional trading infrastructure. Visible perforations within a central block symbolize optimized data conduits for high-fidelity execution and capital efficiency. This visual metaphor highlights seamless interoperability, robust Prime RFQ architecture, and intelligent routing for digital asset derivatives.](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-derivatives-rfq-protocols-multi-leg-execution-layer.jpg)

The 2002 ISDA Agreement replaced the 1992 version's ambiguities with objective, process-driven protocols for greater market stability.

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        "caption": "This abstract close-up showcases a critical precision component, likely part of an advanced institutional trading system. Its clean, cylindrical form with a deep, focused aperture embodies the dedicated RFQ engine at the heart of a Prime RFQ, facilitating efficient price discovery for institutional digital asset derivatives. The design signifies robust infrastructure for low-latency algorithmic execution, optimizing multi-leg spread strategies and ensuring best execution through private quotation mechanisms, crucial for managing portfolio margin and mitigating counterparty risk in volatile markets."
    },
    "keywords": [
        "1992 ISDA Master Agreement",
        "2002 ISDA",
        "2002 ISDA Master Agreement",
        "Close-Out Amount",
        "Commercially Reasonable",
        "Counterparty Risk",
        "Credit Valuation Adjustment",
        "Derivatives Termination",
        "Early Termination Date",
        "Funding Valuation Adjustment",
        "ISDA Master Agreement",
        "Lehman Brothers Default",
        "Market Data",
        "Market Quotation",
        "Replacement Transaction",
        "Valuation Dispute"
    ]
}
```

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---

**Original URL:** https://options.greeks.live/question/how-does-the-2002-isdas-close-out-amount-affect-valuation-disputes-in-practice/
