# How Does the Close-Out Amount Calculation Differ between a Force Majeure Event and a Standard Event of Default? ▴ Question

**Published:** 2025-08-03
**Categories:** Question

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## Concept

The calculation of a close-out amount under an [ISDA Master Agreement](https://prime.greeks.live/area/isda-master-agreement/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) represents the conversion of future contractual obligations into a single, present-day monetary value. This mechanism is the financial core of contract termination, crystallizing the economic exposure between two counterparties when their derivatives portfolio is prematurely unwound. The distinction in how this value is calculated, when triggered by a standard Event of Default versus a [Force Majeure Event](https://prime.greeks.live/area/force-majeure-event/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite), is a foundational element of the market’s risk architecture. It reflects a deliberate and systemic choice to treat a counterparty’s failure differently from a market-wide paralysis.

An [Event of Default](https://prime.greeks.live/area/event-of-default/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) is an endogenous failure. It is a breach of contract, a failure of one of the parties to perform its obligations as defined within the agreement. The resulting [close-out calculation](https://prime.greeks.live/area/close-out-calculation/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) is therefore designed as a protective mechanism for the non-breaching party.

The process grants the [Non-Defaulting Party](https://prime.greeks.live/area/non-defaulting-party/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) significant control and discretion, empowering it to preserve the economic equivalent of its bargain. The operational calculus is rooted in assigning fault and providing a remedy that makes the innocent party whole.

> The core distinction lies in the allocation of control over the valuation process, which shifts from unilateral in an Event of Default to bilateral in a Force Majeure scenario.

A Force Majeure Event, conversely, is an exogenous shock. It is an external event, beyond the control of either party, that renders performance impossible or impracticable. Under 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), this triggers a process built on the principle of shared misfortune. There is no [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), only two affected parties.

The close-out calculation, therefore, pivots from a unilateral, protective action to a bilateral, equitable settlement. The objective is to find a fair, [mid-market valuation](https://prime.greeks.live/area/mid-market-valuation/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) that does not unduly penalize or reward either counterparty for a situation that neither caused. This structural difference in the calculation protocol is a critical component of systemic risk management, ensuring that market-disrupting events are handled with a framework designed for mutual resolution rather than punitive action.

![A conceptual image illustrates a sophisticated RFQ protocol engine, depicting the market microstructure of institutional digital asset derivatives. Two semi-spheres, one light grey and one teal, represent distinct liquidity pools or counterparties within a Prime RFQ, connected by a complex execution management system for high-fidelity execution and atomic settlement of Bitcoin options or Ethereum futures](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-derivatives-rfq-market-microstructure-2.jpg)

![A sophisticated metallic mechanism with integrated translucent teal pathways on a dark background. This abstract visualizes the intricate market microstructure of an institutional digital asset derivatives platform, specifically the RFQ engine facilitating private quotation and block trade execution](https://options.greeks.live/wp-content/uploads/2025/07/systemic-framework-for-institutional-digital-asset-derivatives-rfq-price-discovery-and-atomic-settlement.jpg)

## Strategy

The strategic considerations underpinning the close-out calculation diverge significantly between an Event of Default and a [Force Majeure](https://prime.greeks.live/area/force-majeure/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) Event. The choice of strategy is dictated by the nature of the termination and the role assigned to each party by the ISDA framework. The entire process shifts from a defensive, unilateral action to a collaborative, bilateral procedure.

![Detailed metallic disc, a Prime RFQ core, displays etched market microstructure. Its central teal dome, an intelligence layer, facilitates price discovery](https://options.greeks.live/wp-content/uploads/2025/07/principal-operating-system-intelligence-layer-powering-digital-asset-derivatives-rfq-protocols-for-optimal-execution.jpg)

## Event of Default a Unilateral Valuation Strategy

In the context of an Event of Default, the strategy is inherently one-sided. The Non-Defaulting Party is vested with the authority to act as the sole “[Determining Party](https://prime.greeks.live/area/determining-party/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite).” This grants it control over the valuation process, a critical strategic advantage. The overarching goal is to calculate an [Early Termination Amount](https://prime.greeks.live/area/early-termination-amount/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) that fully compensates the Non-Defaulting Party for the economic loss of its bargain, as if the Defaulting Party had fulfilled all its obligations.

The Determining Party’s strategic flexibility is embedded in the methodology it can employ:

- **Close-Out Amount (2002 ISDA)** This is the modern, flexible standard. The Determining Party must use [commercially reasonable procedures](https://prime.greeks.live/area/commercially-reasonable-procedures/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) to produce a [commercially reasonable](https://prime.greeks.live/area/commercially-reasonable/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) result. This allows for the use of internal models, third-party quotations, and relevant market data, providing the Determining Party with a broad toolkit to arrive at a valuation that protects its economic interests.

- **Loss (1992 ISDA)** A broader and more subjective measure, allowing the Determining Party to calculate its total losses and costs in connection with terminating the agreement, including the loss of its economic bargain.

- **Market Quotation (1992 ISDA)** A more structured approach requiring the Determining Party to obtain quotes from leading market makers for replacement transactions. This method is more objective but can be less flexible in volatile or illiquid markets.

The strategy for the Non-Defaulting Party is to use its discretion to achieve the most favorable and defensible valuation, effectively preserving its economic position at the expense of the party that failed to perform.

![Close-up reveals robust metallic components of an institutional-grade execution management system. Precision-engineered surfaces and central pivot signify high-fidelity execution for digital asset derivatives](https://options.greeks.live/wp-content/uploads/2025/07/institutional-grade-digital-asset-derivatives-rfq-execution-precision-optimizing-market-microstructure-for-best-execution-and-prime-os.jpg)

## Force Majeure a Bilateral Equitable Strategy

Upon the occurrence of a Force Majeure Event, the strategic framework undergoes a fundamental transformation. Under the 2002 ISDA, both counterparties are designated as “[Affected Parties](https://prime.greeks.live/area/affected-parties/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite).” Consequently, there is no single Determining Party. Instead, the process becomes bilateral, with each party independently calculating a [Close-out Amount](https://prime.greeks.live/area/close-out-amount/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) for the terminated transactions.

The strategic objective here is fairness and the achievement of a mid-market valuation. The ISDA architecture is designed to prevent either party from exploiting the situation. The methodology is prescribed to be equitable:

- **Bilateral Calculation** Each party determines its own Close-out Amount for the portfolio.

- **Mid-Market Aim** The final Early [Termination Amount](https://prime.greeks.live/question/what-are-the-key-differences-in-calculating-the-termination-amount-for-a-force-majeure-event-versus-an-event-of-default/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) is derived from the average of the two independently calculated figures. This neutralizes bias and steers the final value toward a consensus, mid-market price.

- **Creditworthiness Exclusion** When seeking third-party quotes for this purpose, the parties are explicitly instructed to disregard the current creditworthiness of the counterparty, preventing the distress of the situation from devaluing the claims.

> In a Force Majeure termination, the calculation methodology is engineered to produce a fair, mid-market valuation by averaging the inputs from both affected parties.

A critical strategic element is the “[Hierarchy of Events](https://prime.greeks.live/area/hierarchy-of-events/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite).” The ISDA [Master Agreement](https://prime.greeks.live/question/what-are-the-key-differences-between-a-prime-brokerage-agreement-and-an-isda-master-agreement/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) specifies that if a set of circumstances constitutes both a Force Majeure Event and an Event of Default (for example, a government action that triggers an Illegality but also causes a failure to pay), it will be treated as an Event of Default. This makes the correct and timely classification of the event a paramount strategic decision, as it dictates which valuation regime will apply.

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## How Do Valuation Strategies Compare?

The strategic differences are stark and can be summarized in the following table.

| Factor | Event of Default | Force Majeure Event |
| --- | --- | --- |
| Determining Party | The Non-Defaulting Party alone. | Both parties are Affected Parties and both calculate a value. |
| Valuation Objective | Preserve the economic equivalent of the bargain for the Non-Defaulting Party. | Achieve a fair, mid-market valuation equitable to both parties. |
| Primary Methodology (2002 ISDA) | Unilateral calculation of the Close-out Amount using commercially reasonable procedures. | Bilateral calculation, with the final amount based on the average of the two parties’ determinations. |
| Discretion | Significant discretion rests with the Non-Defaulting Party. | Discretion is shared and balanced between the two parties. |

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## Execution

The execution of the close-out calculation is a precise, multi-step process governed by the ISDA Master Agreement. The operational workflow, from the initial notice to the final settlement payment, is entirely different for an Event of Default compared to a Force [Majeure Event](https://prime.greeks.live/question/what-are-the-key-differences-in-calculating-the-termination-amount-for-a-force-majeure-event-versus-an-event-of-default/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite), reflecting their distinct underlying principles.

![A central metallic RFQ engine anchors radiating segmented panels, symbolizing diverse liquidity pools and market segments. Varying shades denote distinct execution venues within the complex market microstructure, facilitating price discovery for institutional digital asset derivatives with minimal slippage and latency via high-fidelity execution](https://options.greeks.live/wp-content/uploads/2025/07/principals-digital-asset-derivatives-rfq-protocol-execution-nexus.jpg)

## Executing the Calculation for an Event of Default

The process is linear and driven by the Non-Defaulting Party. It is an exercise in control and remedy.

- **Notice of [Early Termination](https://prime.greeks.live/area/early-termination/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite)** Upon the occurrence of an Event of Default, the Non-Defaulting Party has the right to designate an [Early Termination Date](https://prime.greeks.live/area/early-termination-date/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) by giving notice to the Defaulting Party. This notice crystallizes the termination of all outstanding transactions under the agreement.

- **Unilateral Calculation of Close-out Amount** The Non-Defaulting Party, as the sole Determining Party, calculates the Close-out Amount. Per the [2002 ISDA](https://prime.greeks.live/area/2002-isda/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite), this requires acting in good faith and using “commercially reasonable procedures in order to produce a commercially reasonable result.” This may involve:

<li>Obtaining quotations from third-party dealers for replacement trades.

- Using internal, proprietary models to price the terminated transactions.

- Consulting relevant market data, such as observable prices, yield curves, and volatility surfaces.

</li>
- **Aggregation and Netting** The Determining Party aggregates all the calculated Close-out Amounts (which can be positive or negative) for every terminated transaction. This sum is then combined with any [Unpaid Amounts](https://prime.greeks.live/area/unpaid-amounts/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) (payments or deliveries that were due but not made prior to termination). The result is a single net figure known as the Early Termination Amount.

- **Final Settlement** If the Early Termination Amount is positive, it is payable by the Defaulting Party to the Non-Defaulting Party. If it is negative, under the “Second Method” and the 2002 ISDA standard, the Non-Defaulting Party pays that amount to the Defaulting Party, ensuring a full two-way payment.

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## Executing the Calculation for a Force Majeure Event

The execution for a Force Majeure Event is a more patient, collaborative, and structured process designed for an equitable outcome.

- **[Waiting Period](https://prime.greeks.live/area/waiting-period/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite)** The process begins with a “waiting period” after the Force Majeure Event occurs. For Force Majeure, this is typically eight Local Business Days. During this time, payment and delivery obligations affected by the event are deferred. This period allows time for the disruption to potentially resolve itself.

- **Designation of Early Termination Date** If the Force Majeure Event is still continuing after the waiting period has expired, either of the Affected Parties may designate an Early Termination Date for the affected transactions.

- **Bilateral Calculation of Close-out Amount** This is the crucial distinction. Both parties independently calculate a Close-out Amount for the terminated transactions. Each must act in good faith and use commercially reasonable procedures, with the goal of determining a fair market value.

- **Determination of the Early Termination Amount** The two separately calculated Close-out Amounts are not used to make competing claims. Instead, they are inputs into a specific formula defined in the 2002 ISDA Master Agreement. The Early Termination Amount is calculated as the sum of:

<li>One-half of the difference between the higher amount (determined by party X) and the lower amount (determined by party Y).

- The Unpaid Amounts owing to party X.

- Less the Unpaid Amounts owing to party Y.

This formula effectively averages the two valuations to arrive at a single, equitable settlement amount.</li>
- **Settlement** The final calculated Early Termination Amount is paid by one party to the other. The process ensures that neither party is able to unilaterally impose a valuation on the other.

![A complex interplay of translucent teal and beige planes, signifying multi-asset RFQ protocol pathways and structured digital asset derivatives. Two spherical nodes represent atomic settlement points or critical price discovery mechanisms within a Prime RFQ](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-derivatives-rfq-protocol-for-optimal-liquidity-aggregation-and-high-fidelity-execution.jpg)

## What Is the Quantitative Impact of These Differences?

A hypothetical scenario can illustrate the practical impact of these divergent execution paths. Consider a portfolio of interest rate swaps between Party A and Party B.

| Scenario | Determining Party/Parties | Valuation Input(s) | Resulting Close-Out Amount |
| --- | --- | --- | --- |
| Event of Default (Party B Defaults) | Party A (Non-Defaulting Party) | Party A obtains dealer quotes and uses its internal model, arriving at a replacement cost of +$10,000,000. | +$10,000,000 (Payable by Party B to Party A) |
| Force Majeure Event | Party A and Party B (Both Affected Parties) | Party A calculates a mid-market value of +$9,500,000. Party B calculates a mid-market value of +$8,500,000. | Average of the two calculations ▴ (9.5M + 8.5M) / 2 = +$9,000,000 (Payable by Party B to Party A) |

In this simplified example, the unilateral discretion afforded to Party A in the Event of Default scenario results in a higher valuation in its favor. The bilateral, averaging mechanism required by the Force Majeure event produces a more moderate, mid-market outcome. This quantitative difference is a direct result of the distinct execution protocols mandated by the ISDA architecture.

![Two distinct components, beige and green, are securely joined by a polished blue metallic element. This embodies a high-fidelity RFQ protocol for institutional digital asset derivatives, ensuring atomic settlement and optimal liquidity](https://options.greeks.live/wp-content/uploads/2025/07/institutional-rfq-protocol-for-digital-asset-derivatives-high-fidelity-link.jpg)

## References

- Contrarian, The Jolly. “Events of Default and Termination Events – ISDA Provision.” 2024.

- Contrarian, The Jolly. “Payments on Early Termination – ISDA Provision.” 2024.

- “The 2002 ISDA Master Agreement Made Simple.” Global Capital, 2003.

- International Swaps and Derivatives Association, Inc. “ISDA Illegality/Force Majeure Protocol.” 2012.

- “Derivatives Laws and Regulations Close-out Under the 1992 and 2002 ISDA Master Agreements 2025.” International Comparative Legal Guides, 2025.

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## Reflection

![Angularly connected segments portray distinct liquidity pools and RFQ protocols. A speckled grey section highlights granular market microstructure and aggregated inquiry complexities for digital asset derivatives](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-derivatives-rfq-protocol-execution-efficiency.jpg)

## Calibrating the Response Mechanism

The procedural divergence in close-out calculations is a masterclass in risk system design. It is a pre-negotiated, codified acknowledgment that the nature of a crisis dictates the appropriate response. An internal failure of a counterparty requires a swift, decisive, and protective remedy. A systemic, external shock demands a process that preserves the integrity of the market itself by preventing fire sales and opportunistic valuations.

Understanding this distinction is fundamental to appreciating the resilience of the derivatives market architecture. It prompts a critical question for any market participant ▴ is your own operational framework calibrated to respond with the same level of precision to different types of systemic stress?

![A central dark nexus with intersecting data conduits and swirling translucent elements depicts a sophisticated RFQ protocol's intelligence layer. This visualizes dynamic market microstructure, precise price discovery, and high-fidelity execution for institutional digital asset derivatives, optimizing capital efficiency and mitigating counterparty risk](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-derivatives-rfq-protocol-engine-visualizing-high-fidelity-execution-and-market-microstructure-dynamics.jpg)

## Glossary

<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">
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## Isda Master Agreement

Meaning ▴ The ISDA Master Agreement, while originating in traditional finance, serves as a crucial foundational legal framework for institutional participants engaging in over-the-counter (OTC) crypto derivatives trading and complex RFQ crypto transactions. </a><a href="https://prime.greeks.live/area/force-majeure-event/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![Precision-engineered multi-layered architecture depicts institutional digital asset derivatives platforms, showcasing modularity for optimal liquidity aggregation and atomic settlement. This visualizes sophisticated RFQ protocols, enabling high-fidelity execution and robust pre-trade analytics](https://options.greeks.live/wp-content/uploads/2025/08/modular-digital-asset-derivative-prime-os-for-institutional-rfq-and-block-trade-execution.jpg)

## Force Majeure Event

Meaning ▴ A Force Majeure Event, in the context of crypto financial contracts and operational agreements, refers to an unforeseeable circumstance that prevents a party from fulfilling its contractual obligations. </a><a href="https://prime.greeks.live/area/close-out-calculation/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![A sophisticated, layered circular interface with intersecting pointers symbolizes institutional digital asset derivatives trading. It represents the intricate market microstructure, real-time price discovery via RFQ protocols, and high-fidelity execution](https://options.greeks.live/wp-content/uploads/2025/07/prime-os-institutional-digital-asset-derivatives-rfq-market-microstructure.jpg)

## Close-Out Calculation

Meaning ▴ Close-Out Calculation refers to the process of determining the final financial value and obligations of outstanding positions or contracts when a trading relationship or specific agreements are terminated prematurely, often due to a default event or the exercise of a contractual right. </a><a href="https://prime.greeks.live/area/event-of-default/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![Abstract geometric forms depict a Prime RFQ for institutional digital asset derivatives. A central RFQ engine drives block trades and price discovery with high-fidelity execution](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-derivatives-rfq-engine-optimizing-market-microstructure-for-high-fidelity-execution.jpg)

## Event of Default

Meaning ▴ An Event of Default, in the context of crypto financial agreements and institutional trading, signifies a predefined breach of contractual obligations by a counterparty, triggering specific legal and operational consequences outlined in the governing agreement. </a><a href="https://prime.greeks.live/area/non-defaulting-party/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
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## Non-Defaulting Party

Meaning ▴ A Non-Defaulting Party refers to the participant in a financial contract, such as a derivatives agreement or lending facility within the crypto ecosystem, that has fully adhered to its obligations while the other party has failed to do so. </a><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">
![A central control knob on a metallic platform, bisected by sharp reflective lines, embodies an institutional RFQ protocol. This depicts intricate market microstructure, enabling high-fidelity execution, precise price discovery for multi-leg options, and robust Prime RFQ deployment, optimizing latent liquidity across digital asset derivatives](https://options.greeks.live/wp-content/uploads/2025/08/institutional-rfq-digital-asset-derivatives-execution-engine-core-microstructure.jpg)

## 2002 Isda Master Agreement

Meaning ▴ The 2002 ISDA Master Agreement is the foundational legal document published by the International Swaps and Derivatives Association, designed to standardize the contractual terms for privately negotiated (Over-the-Counter) derivatives transactions between two counterparties globally. </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 metallic disc intersected by a dark bar, over a teal circuit board. This visualizes Institutional Liquidity Pool access via RFQ Protocol, enabling Block Trade Execution of Digital Asset Options with High-Fidelity Execution](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-derivatives-rfq-protocol-principal-operational-framework-market-microstructure-high-fidelity-execution.jpg)

## 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/mid-market-valuation/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![A metallic structural component interlocks with two black, dome-shaped modules, each displaying a green data indicator. This signifies a dynamic RFQ protocol within an institutional Prime RFQ, enabling high-fidelity execution for digital asset derivatives](https://options.greeks.live/wp-content/uploads/2025/07/modular-rfq-protocol-engine-for-digital-asset-derivatives-prime-os.jpg)

## Mid-Market Valuation

Meaning ▴ Mid-Market Valuation refers to the assessment of an asset's or security's worth based on the midpoint between its current best bid (buy) price and its best ask (sell) price in a given market. </a><a href="https://prime.greeks.live/area/force-majeure/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![Abstract structure combines opaque curved components with translucent blue blades, a Prime RFQ for institutional digital asset derivatives. It represents market microstructure optimization, high-fidelity execution of multi-leg spreads via RFQ protocols, ensuring best execution and capital efficiency across liquidity pools](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-derivatives-rfq-protocol-optimizing-market-microstructure-for-high-fidelity-execution-best-execution-price-discovery-across-liquidity-pools-and-prime-os.jpg)

## Force Majeure

Meaning ▴ In the context of crypto investment and trading, a Force Majeure clause refers to a critical contractual provision that excuses parties from fulfilling their obligations when certain extraordinary events, beyond their reasonable control, prevent performance. </a><a href="https://prime.greeks.live/area/early-termination-amount/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![A reflective, metallic platter with a central spindle and an integrated circuit board edge against a dark backdrop. This imagery evokes the core low-latency infrastructure for institutional digital asset derivatives, illustrating high-fidelity execution and market microstructure dynamics](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-rfq-execution-infrastructure-precision.jpg)

## Early Termination Amount

Meaning ▴ Early Termination Amount refers to the calculated value payable by one party to another upon the premature cessation of a financial contract, such as a crypto derivative or lending agreement. </a><a href="https://prime.greeks.live/area/determining-party/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![A large, smooth sphere, a textured metallic sphere, and a smaller, swirling sphere rest on an angular, dark, reflective surface. This visualizes a principal liquidity pool, complex structured product, and dynamic volatility surface, representing high-fidelity execution within an institutional digital asset derivatives market microstructure](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-derivatives-rfq-optimized-market-microstructure-precision.jpg)

## Determining Party

Meaning ▴ In the precise terminology of complex crypto financial instruments, particularly institutional options or structured products, the Determining Party is the pre-designated entity, whether an on-chain oracle or an agreed-upon off-chain agent, explicitly responsible for definitively calculating and announcing specific parameters, values, or conditions that critically influence the payoff, settlement, or lifecycle events of a contractual agreement. </a><a href="https://prime.greeks.live/area/commercially-reasonable-procedures/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![A macro view reveals a robust metallic component, signifying a critical interface within a Prime RFQ. This secure mechanism facilitates precise RFQ protocol execution, enabling atomic settlement for institutional-grade digital asset derivatives, embodying high-fidelity execution](https://options.greeks.live/wp-content/uploads/2025/07/core-secure-institutional-digital-asset-derivatives-rfq-trade-system-element.jpg)

## Commercially Reasonable Procedures

Meaning ▴ Commercially Reasonable Procedures denote a standard of conduct or a set of actions that a prudent and competent entity would undertake in a specific business context, balancing cost, effectiveness, and prevailing industry practices. </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 precise mechanical instrument with intersecting transparent and opaque hands, representing the intricate market microstructure of institutional digital asset derivatives. This visual metaphor highlights dynamic price discovery and bid-ask spread dynamics within RFQ protocols, emphasizing high-fidelity execution and latent liquidity through a robust Prime RFQ for atomic settlement](https://options.greeks.live/wp-content/uploads/2025/07/precision-engineering-driving-institutional-digital-asset-derivatives-execution-across-advanced-rfq-protocols-and-prime-brokerage-frameworks.jpg)

## Commercially Reasonable

Meaning ▴ "Commercially Reasonable" is a legal and business standard requiring parties to a contract to act in a practical, prudent, and sensible manner, consistent with prevailing industry practices and good faith. </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">
![A sleek, two-toned dark and light blue surface with a metallic fin-like element and spherical component, embodying an advanced Principal OS for Digital Asset Derivatives. This visualizes a high-fidelity RFQ execution environment, enabling precise price discovery and optimal capital efficiency through intelligent smart order routing within complex market microstructure and dark liquidity pools](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-derivatives-rfq-protocol-optimizing-market-microstructure-for-high-fidelity-execution-and-capital-efficiency.jpg)

## Close-Out Amount

Meaning ▴ The Close-Out Amount represents the aggregated net sum due between two parties upon the early termination or default of a master agreement, encompassing all outstanding obligations across multiple transactions. </a><a href="https://prime.greeks.live/area/affected-parties/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![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)

## Affected Parties

Meaning ▴ Affected parties are entities or components that experience direct consequences from actions, decisions, or system states within the crypto ecosystem. </a><a href="https://prime.greeks.live/question/what-are-the-key-differences-in-calculating-the-termination-amount-for-a-force-majeure-event-versus-an-event-of-default/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![A multi-faceted digital asset derivative, precisely calibrated on a sophisticated circular mechanism. This represents a Prime Brokerage's robust RFQ protocol for high-fidelity execution of multi-leg spreads, ensuring optimal price discovery and minimal slippage within complex market microstructure, critical for alpha generation](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-derivatives-rfq-protocol-execution-precision-2.jpg)

## Termination Amount

The calculation for an Event of Default is a unilateral risk mitigation tool; for Force Majeure, it is a bilateral, fair-value process. </a><a href="https://prime.greeks.live/area/hierarchy-of-events/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![Abstract geometric representation of an institutional RFQ protocol for digital asset derivatives. Two distinct segments symbolize cross-market liquidity pools and order book dynamics](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-derivatives-rfq-execution-protocol-2.jpg)

## Hierarchy of Events

Meaning ▴ The Hierarchy of Events refers to a structured classification system that ranks or categorizes events within a complex system based on their severity, impact, or criticality. </a><a href="https://prime.greeks.live/question/what-are-the-key-differences-between-a-prime-brokerage-agreement-and-an-isda-master-agreement/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![Abstract image showing interlocking metallic and translucent blue components, suggestive of a sophisticated RFQ engine. This depicts the precision of an institutional-grade Crypto Derivatives OS, facilitating high-fidelity execution and optimal price discovery within complex market microstructure for multi-leg spreads and atomic settlement](https://options.greeks.live/wp-content/uploads/2025/07/precision-engineered-market-microstructure-for-institutional-digital-asset-derivatives-rfq.jpg)

## Master Agreement

A Prime Brokerage Agreement is a centralized service contract; an ISDA Master Agreement is a standardized bilateral derivatives protocol. </a><a href="https://prime.greeks.live/question/what-are-the-key-differences-in-calculating-the-termination-amount-for-a-force-majeure-event-versus-an-event-of-default/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![An abstract composition featuring two overlapping digital asset liquidity pools, intersected by angular structures representing multi-leg RFQ protocols. This visualizes dynamic price discovery, high-fidelity execution, and aggregated liquidity within institutional-grade crypto derivatives OS, optimizing capital efficiency and mitigating counterparty risk](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-derivatives-rfq-protocols-optimizing-aggregated-liquidity-and-multi-leg-execution-via-advanced-market-microstructure.jpg)

## Majeure Event

The calculation for an Event of Default is a unilateral risk mitigation tool; for Force Majeure, it is a bilateral, fair-value process. </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">
![Abstract spheres and a translucent flow visualize institutional digital asset derivatives market microstructure. It depicts robust RFQ protocol execution, high-fidelity data flow, and seamless liquidity aggregation](https://options.greeks.live/wp-content/uploads/2025/07/precision-market-microstructure-for-institutional-digital-asset-derivatives-leveraging-rfq-protocols-and-atomic-settlement-across-prime-os.jpg)

## Early Termination Date

Meaning ▴ An Early Termination Date refers to a specific, contractually defined point in time, prior to a financial instrument's scheduled maturity, at which the agreement can be concluded. </a><a href="https://prime.greeks.live/area/early-termination/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![A sophisticated system's core component, representing an Execution Management System, drives a precise, luminous RFQ protocol beam. This beam navigates between balanced spheres symbolizing counterparties and intricate market microstructure, facilitating institutional digital asset derivatives trading, optimizing price discovery, and ensuring high-fidelity execution within a prime brokerage framework](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-derivatives-rfq-protocol-execution-engine-10.jpg)

## Early Termination

Meaning ▴ Early Termination, within the framework of crypto financial instruments, denotes the contractual right or obligation to conclude a derivative or lending agreement prior to its originally stipulated maturity date. </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">
![A sleek, metallic control mechanism with a luminous teal-accented sphere symbolizes high-fidelity execution within institutional digital asset derivatives trading. Its robust design represents Prime RFQ infrastructure enabling RFQ protocols for optimal price discovery, liquidity aggregation, and low-latency connectivity in algorithmic trading environments](https://options.greeks.live/wp-content/uploads/2025/08/institutional-digital-asset-derivatives-rfq-execution-control-for-optimal-market-microstructure-precision.jpg)

## 2002 Isda

Meaning ▴ The 2002 ISDA, or the 2002 ISDA Master Agreement, represents the prevailing global standard contractual framework developed by the International Swaps and Derivatives Association for documenting over-the-counter (OTC) derivatives transactions between two parties. </a><a href="https://prime.greeks.live/area/unpaid-amounts/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![A transparent cylinder containing a white sphere floats between two curved structures, each featuring a glowing teal line. This depicts institutional-grade RFQ protocols driving high-fidelity execution of digital asset derivatives, facilitating private quotation and liquidity aggregation through a Prime RFQ for optimal block trade atomic settlement](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-derivatives-rfq-protocol-high-fidelity-execution-6.jpg)

## Unpaid Amounts

Meaning ▴ Unpaid Amounts refer to any sums of money or value that are contractually due but have not yet been settled by the obligor. </a><a href="https://prime.greeks.live/area/waiting-period/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![Two sleek, abstract forms, one dark, one light, are precisely stacked, symbolizing a multi-layered institutional trading system. This embodies sophisticated RFQ protocols, high-fidelity execution, and optimal liquidity aggregation for digital asset derivatives, ensuring robust market microstructure and capital efficiency within a Prime RFQ](https://options.greeks.live/wp-content/uploads/2025/07/institutional-grade-digital-asset-derivatives-platform-architecture-high-fidelity-execution-protocols-and-liquidity-aggregation.jpg)

## Waiting Period

Meaning ▴ A Waiting Period in the crypto context refers to a predefined duration that must elapse before a particular action, such as fund withdrawal, asset transfer, or contract settlement, can be fully executed. </a>

**Tags:** [Event of Default](https://options.greeks.live/area/event-of-default/), [Early Termination](https://options.greeks.live/area/early-termination/), [Determining Party](https://options.greeks.live/area/determining-party/), [2002 ISDA Master Agreement](https://options.greeks.live/area/2002-isda-master-agreement/), [Early Termination Amount](https://options.greeks.live/area/early-termination-amount/), [Force Majeure](https://options.greeks.live/area/force-majeure/)	

## Discover More

- 
### [How Does the ISDA Master Agreement Facilitate Close-Out Netting?](https://options.greeks.live/question/how-does-the-isda-master-agreement-facilitate-close-out-netting/)
![Sharp, layered planes, one deep blue, one light, intersect a luminous sphere and a vast, curved teal surface. This abstractly represents high-fidelity algorithmic trading and multi-leg spread execution. The sphere symbolizes a prime brokerage liquidity pool, interacting with latent liquidity for optimal RFQ protocol price discovery within complex market microstructure.](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-derivatives-rfq-protocol-execution-system-microstructure.jpg)

The ISDA Master Agreement facilitates close-out netting by creating a single contract that allows for the termination and valuation of all trades into one net payment upon default.

- 
### [How Does the 2002 ISDA Master Agreement Change the Standard for Valuation?](https://options.greeks.live/question/how-does-the-2002-isda-master-agreement-change-the-standard-for-valuation/)
![A diagonal composition contrasts a blue intelligence layer, symbolizing market microstructure and volatility surface, with a metallic, precision-engineered execution engine. This depicts high-fidelity execution for institutional digital asset derivatives via RFQ protocols, ensuring atomic settlement.](https://options.greeks.live/wp-content/uploads/2025/07/prime-os-rfq-for-institutional-digital-asset-derivatives-execution.jpg)

The 2002 ISDA Master Agreement replaced rigid valuation mechanics with a flexible, commercially reasonable 'Close-out Amount' standard.

- 
### [Can a Determining Party Choose the Most Favorable Outcome within a Reasonable Range?](https://options.greeks.live/question/can-a-determining-party-choose-the-most-favorable-outcome-within-a-reasonable-range/)
![A polished blue sphere representing a digital asset derivative rests on a metallic ring, symbolizing market microstructure and RFQ protocols, supported by a foundational beige sphere, an institutional liquidity pool. A smaller blue sphere floats above, denoting atomic settlement or a private quotation within a Principal's Prime RFQ for high-fidelity execution.](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-derivatives-market-microstructure-and-rfq-protocols.jpg)

A Determining Party must act within an objectively reasonable range and cannot simply choose the most favorable outcome.

- 
### [How Does the Close out Calculation Differ between the 1992 and 2002 Isda Agreements?](https://options.greeks.live/question/how-does-the-close-out-calculation-differ-between-the-1992-and-2002-isda-agreements/)
![A central, dynamic, multi-bladed mechanism visualizes Algorithmic Trading engines and Price Discovery for Digital Asset Derivatives. Flanked by sleek forms signifying Latent Liquidity and Capital Efficiency, it illustrates High-Fidelity Execution via RFQ Protocols within an Institutional Grade framework, minimizing Slippage.](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-derivatives-market-microstructure-rfq-protocol-optimization.jpg)

The 2002 ISDA Agreement replaces the rigid 1992 'Market Quotation/Loss' with a flexible 'Close-out Amount' based on commercial reasonableness.

- 
### [How Do Collateral Agreements Interact with Counterparty Default and Force Majeure Scenarios?](https://options.greeks.live/question/how-do-collateral-agreements-interact-with-counterparty-default-and-force-majeure-scenarios/)
![A luminous conical element projects from a multi-faceted transparent teal crystal, signifying RFQ protocol precision and price discovery. This embodies institutional grade digital asset derivatives high-fidelity execution, leveraging Prime RFQ for liquidity aggregation and atomic settlement.](https://options.greeks.live/wp-content/uploads/2025/07/precision-engineered-rfq-protocol-orchestration-for-institutional-digital-asset-derivatives-high-fidelity-execution.jpg)

Collateral agreements manage default via orderly liquidation and force majeure via a systemic pause, ensuring risk containment.

- 
### [Can a Party Challenge a Counterparty’s Declaration of a Force Majeure Event under the 2002 ISDA Agreement?](https://options.greeks.live/question/can-a-party-challenge-a-counterpartys-declaration-of-a-force-majeure-event-under-the-2002-isda-agreement/)
![A sleek, segmented cream and dark gray automated device, depicting an institutional grade Prime RFQ engine. It represents precise execution management system functionality for digital asset derivatives, optimizing price discovery and high-fidelity execution within market microstructure.](https://options.greeks.live/wp-content/uploads/2025/07/prime-os-rfq-engine-optimal-institutional-digital-asset-execution-system.jpg)

A party can challenge a force majeure declaration by scrutinizing the claim's factual basis and the declarant's mitigation efforts.

- 
### [How Does the 2002 ISDA Standard Affect the Speed of Default Resolution?](https://options.greeks.live/question/how-does-the-2002-isda-standard-affect-the-speed-of-default-resolution/)
![A metallic structural component interlocks with two black, dome-shaped modules, each displaying a green data indicator. This signifies a dynamic RFQ protocol within an institutional Prime RFQ, enabling high-fidelity execution for digital asset derivatives. Internal mechanisms underscore algorithmic trading and pre-trade analytics for capital efficiency and best execution.](https://options.greeks.live/wp-content/uploads/2025/07/modular-rfq-protocol-engine-for-digital-asset-derivatives-prime-os.jpg)

The 2002 ISDA standard accelerates default resolution by mandating a single, objective Close-out Amount calculation.

- 
### [How Does the Force Majeure Clause in the 2002 Isda Agreement Affect a Party’s Obligations?](https://options.greeks.live/question/how-does-the-force-majeure-clause-in-the-2002-isda-agreement-affect-a-partys-obligations/)
![Central mechanical pivot with a green linear element diagonally traversing, depicting a robust RFQ protocol engine for institutional digital asset derivatives. This signifies high-fidelity execution of aggregated inquiry and price discovery, ensuring capital efficiency within complex market microstructure and order book dynamics.](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-derivatives-rfq-protocol-engine-best-execution.jpg)

The 2002 ISDA's Force Majeure clause suspends and terminates obligations on a no-fault basis when external events make performance impossible.

- 
### [What Is the Legal Standard for “Commercially Reasonable Procedures” in a Derivatives Close-Out?](https://options.greeks.live/question/what-is-the-legal-standard-for-commercially-reasonable-procedures-in-a-derivatives-close-out/)
![Detailed metallic disc, a Prime RFQ core, displays etched market microstructure. Its central teal dome, an intelligence layer, facilitates price discovery. Protruding rods signify low-latency RFQ protocol data transmission, ensuring high-fidelity execution for digital asset derivatives.](https://options.greeks.live/wp-content/uploads/2025/07/principal-operating-system-intelligence-layer-powering-digital-asset-derivatives-rfq-protocols-for-optimal-execution.jpg)

The legal standard for "commercially reasonable procedures" is an objective duty to employ a fair, verifiable, and market-based process to calculate a derivatives close-out value.

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---

**Original URL:** https://options.greeks.live/question/how-does-the-close-out-amount-calculation-differ-between-a-force-majeure-event-and-a-standard-event-of-default/
