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

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

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## Concept

The transition from the 1992 to the 2002 International Swaps and Derivatives Association (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) represents a critical evolution in the architecture of over-the-counter (OTC) derivatives markets. This was a systemic recalibration, driven by a decade of market stresses, litigation, and the accumulated experience of market participants. The core of this architectural shift lies in the close-out mechanism ▴ the protocol that governs how outstanding obligations are terminated and settled following a default.

Understanding the differences between these two protocols is fundamental to grasping the modern mechanics of [counterparty risk](https://prime.greeks.live/area/counterparty-risk/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) management. The 1992 Agreement provided a foundational but flexible framework, while the 2002 Agreement introduced a more robust, objective, and standardized system designed to reduce disputes and enhance legal certainty in moments of market crisis.

At its heart, the 2002 ISDA sought to remedy the ambiguities and potential inequities inherent in the 1992 version’s close-out methodology. The earlier protocol offered parties a choice between two primary valuation methods, “[Market Quotation](https://prime.greeks.live/area/market-quotation/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite)” and “Loss,” and two payment approaches, the “First Method” and “Second Method.” This optionality, while offering flexibility, created significant uncertainty. The First Method, or “one-way payment,” controversially allowed a [non-defaulting party](https://prime.greeks.live/area/non-defaulting-party/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) to retain its gains while refusing to pay any net amount owed to a defaulting counterparty.

This approach was widely criticized and rarely implemented, leading to its abolition in the 2002 framework. The 2002 Agreement replaced this entire structure with a single, unified concept ▴ the “[Close-out Amount](https://prime.greeks.live/area/close-out-amount/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite).” This consolidated approach mandates two-way payments and establishes a more rigorous standard for how the final settlement figure is determined.

> The 2002 ISDA Master Agreement replaced the subjective and varied close-out options of the 1992 version with a single, objectively determined “Close-out Amount” to increase fairness and reduce legal disputes.

This evolution reflects a maturation of the derivatives market. The architects of the 2002 Agreement, informed by events like the Asian financial crisis and the collapse of Long-Term Capital Management (LTCM), recognized the systemic need for a close-out process that was less about punitive measures and more about achieving a commercially fair and defensible valuation. The shift from the 1992 framework’s standard of “reasonableness” ▴ a test of rationality ▴ to the 2002 framework’s requirement for “[commercially reasonable procedures](https://prime.greeks.live/question/how-do-courts-interpret-commercially-reasonable-procedures-in-close-out-amount-calculations/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) in order to produce a [commercially reasonable](https://prime.greeks.live/area/commercially-reasonable/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) result” is the central pillar of this change.

This introduces an [objective standard](https://prime.greeks.live/area/objective-standard/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) of conduct, moving the determination from a subjective assessment by the 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) to a process that must stand up to external, objective scrutiny. This fundamental change in the governing philosophy of the close-out process has had profound implications for how financial institutions manage risk, document transactions, and navigate counterparty defaults.

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## Strategy

The strategic decision to adopt 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) over its 1992 predecessor is rooted in a desire for greater legal certainty and operational robustness in managing counterparty credit risk. The strategic differences are most pronounced in the areas of valuation methodology, the standard of care required during close-out, and the introduction of new [termination events](https://prime.greeks.live/area/termination-events/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) to handle market-wide disruptions.

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## Valuation and Payment Methodology a Strategic Overhaul

The [1992 ISDA](https://prime.greeks.live/area/1992-isda/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) presented a complex menu of choices for calculating the settlement amount upon termination. This created a strategic minefield. The primary choice was between “Market Quotation” and “Loss.”

- **Market Quotation** required the non-defaulting party to obtain quotes from at least three leading dealers for replacement transactions. This method was intended to be objective but often proved impractical in illiquid or stressed markets where obtaining such quotes was difficult or impossible.

- **Loss** was a more flexible, but also more subjective, measure. It allowed the non-defaulting party to calculate its total losses and costs resulting from the termination, based on its reasonable determination in good faith.

Compounding this complexity was the choice between the “First Method” and “[Second Method](https://prime.greeks.live/area/second-method/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite).” The First Method (one-way payment) was strategically aggressive, allowing a non-defaulting party to walk away from its obligations to a defaulter. The Second Method (two-way payment) required the party that was “in the money” to be paid, regardless of default status. The market overwhelmingly favored the Second Method for its perceived fairness, rendering the First Method largely obsolete. The 2002 ISDA strategically eliminated this entire matrix of choices, replacing it with the single “Close-out Amount.” This unified metric requires the [determining party](https://prime.greeks.live/area/determining-party/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) to calculate a single net figure representing the gains or losses from terminating the transactions.

The calculation can incorporate quotations, relevant [market data](https://prime.greeks.live/area/market-data/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite), and information from internal models, but the overarching requirement is that the process and the result are commercially reasonable. This shift significantly reduces the scope for disputes over the chosen valuation method.

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## What Is the Impact of the Higher Standard of Conduct?

Perhaps the most significant strategic change is the elevated standard of conduct imposed on the party determining the Close-out Amount. The 1992 Agreement’s “Loss” calculation required the non-defaulting party to act “reasonably” and in “good faith.” English courts interpreted this as a test of rationality ▴ meaning the determination could only be challenged if it was one that no reasonable non-defaulting party could have reached. This set a very high bar for any legal challenge.

The 2002 Agreement imposes a dual obligation ▴ the determining party must use “commercially [reasonable procedures](https://prime.greeks.live/question/how-do-courts-interpret-commercially-reasonable-procedures-in-close-out-amount-calculations/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite)” to produce a “commercially reasonable result.” This introduces an objective standard that can be assessed by a court or tribunal. The strategic implication is that a non-defaulting party must now maintain a meticulous and defensible record of its [valuation process](https://prime.greeks.live/question/what-is-the-role-of-expert-determination-in-resolving-complex-derivatives-valuation-disputes/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite). It must be prepared to justify not only the final number but also the methodology used to arrive at it. This higher standard provides greater protection for the defaulting party against an unfairly punitive calculation and forces the non-defaulting party to adopt a more rigorous and transparent valuation process.

> By mandating commercially reasonable procedures and outcomes, the 2002 ISDA shifts the close-out valuation from a subjective decision to an objectively defensible process.

The table below outlines the strategic shift in valuation frameworks between the two agreements.

| Feature | 1992 ISDA Master Agreement | 2002 ISDA Master Agreement |
| --- | --- | --- |
| Valuation Method | Choice between “Market Quotation” (requires multiple dealer quotes) and “Loss” (a broader, more subjective measure of total costs). | A single, unified “Close-out Amount.” |
| Payment Logic | Option for “First Method” (one-way payments, no payment to defaulter) or “Second Method” (full two-way payments). | Mandatory full two-way payments are integrated into the Close-out Amount concept. |
| Standard of Conduct | Determining party must act “reasonably” and in “good faith,” interpreted as a test of rationality. | Determining party must use “commercially reasonable procedures to produce a commercially reasonable result,” an objective standard. |
| Handling of Illiquidity | Market Quotation method could fail in illiquid markets, forcing a fallback to the more subjective Loss calculation. | The Close-out Amount is designed to be more flexible, allowing the use of various market data and internal models when quotes are unavailable. |
| Set-Off | No automatic right of set-off; it had to be explicitly added in the Schedule. | Includes a broad contractual set-off provision (Section 6(f)), enhancing risk mitigation. |
| Force Majeure | No specific termination event for force majeure. Parties relied on illegality or impossibility clauses. | Introduces a new Termination Event for Force Majeure and Illegality, with specific valuation rules (e.g. use of mid-market quotes). |

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## New Termination Events and Set-Off Rights

The 2002 ISDA introduced new termination events for “Illegality” and “[Force Majeure](https://prime.greeks.live/area/force-majeure/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite),” providing a clearer pathway for terminating transactions affected by events beyond the control of the parties. This was a direct response to situations where performance becomes impossible or illegal due to unforeseen government actions or other major disruptions. Strategically, this provides a more orderly exit ramp than relying on common law doctrines of frustration. Furthermore, the 2002 Agreement integrated a broad [set-off provision](https://prime.greeks.live/area/set-off-provision/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) (Section 6(f)) directly into the master agreement.

Under the 1992 version, set-off rights had to be manually added to the Schedule. The inclusion of this provision as a standard feature provides a critical risk mitigation tool, allowing the non-defaulting party to set off the close-out amount against any other amounts owed between the parties, thereby reducing its ultimate credit exposure.

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## Execution

The execution of a close-out under the [ISDA Master Agreement](https://prime.greeks.live/area/isda-master-agreement/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) is a precise operational process. The shift from the 1992 to the 2002 version fundamentally altered the execution playbook for a non-defaulting party, demanding a more rigorous, transparent, and defensible methodology. The focus of execution under the 2002 Agreement is the meticulous calculation of the “Close-out Amount,” a process governed by the principles of commercial reasonableness.

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## How Is the Close-Out Amount Actually Calculated?

Executing the calculation of the Close-out Amount under the [2002 ISDA](https://prime.greeks.live/area/2002-isda/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) is a multi-step process. The determining party has a degree of flexibility, but its actions are constrained by the objective standard of commercial reasonableness. This means the process must be documented and justifiable at every stage.

- **Information Gathering** The determining party must gather all relevant information to value the terminated transactions. This can include obtaining quotes from dealers for replacement trades, consulting publicly available market data (e.g. prices from exchanges or other trading venues), and utilizing internal, proprietary valuation models. Unlike the strict “Market Quotation” method of the 1992 ISDA, a single quote may be sufficient if relying on it is commercially reasonable in the circumstances.

- **Valuation of Terminated Transactions** The party must determine the replacement cost or value of each terminated transaction as of the [early termination date](https://prime.greeks.live/area/early-termination-date/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite). The overarching goal is to determine the economic equivalent of the remaining life of the terminated trades. This includes accounting for both realized and unrealized gains and losses.

- **Inclusion of Other Costs** The Close-out Amount also includes any other losses and costs incurred by the non-defaulting party in connection with the termination. This can encompass legal fees, administrative costs, and costs associated with unwinding any related hedges. The key is that these costs must be a direct result of the [early termination](https://prime.greeks.live/area/early-termination/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite).

- **Aggregation and Netting** All gains, losses, and costs are aggregated into a single net sum. This final figure is the Close-out Amount. If the amount is positive, it is owed by the defaulting party to the non-defaulting party. If it is negative, the non-defaulting party owes the amount to the defaulting party, reflecting the mandatory two-way payment structure.

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## A Hypothetical Close-Out Calculation

To illustrate the execution, consider a simple portfolio of two interest rate swaps terminated under a 2002 ISDA Agreement following a counterparty’s failure to pay. The non-defaulting party (Party A) must calculate the Close-out Amount owed by the defaulting party (Party B).

| Component | Swap 1 (Pay Fixed) | Swap 2 (Receive Fixed) | Other Costs | Total |
| --- | --- | --- | --- | --- |
| Replacement Cost (from Dealer Quotes) | $1,500,000 | -$750,000 | N/A | $750,000 |
| Unpaid Amounts (Owed to Party A) | $120,000 | $0 | N/A | $120,000 |
| Cost of Unwinding Hedges | N/A | N/A | $50,000 | $50,000 |
| Legal and Administrative Costs | N/A | N/A | $25,000 | $25,000 |
| Net Amount | $1,620,000 | -$750,000 | $75,000 | $945,000 |

In this scenario, the total Close-out Amount is $945,000. This amount represents Party A’s total economic loss resulting from Party B’s default. Party A would need to have detailed records of the dealer quotes it received, the methodology for its hedge unwind cost calculation, and invoices for its legal fees to defend this calculation as commercially reasonable.

> The execution of a close-out under the 2002 ISDA demands a transparent and well-documented valuation process that can withstand objective scrutiny.

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## Operational Checklist for a Non-Defaulting Party

Executing a close-out requires a disciplined operational workflow. The following checklist outlines the critical steps for a non-defaulting party under the 2002 ISDA.

- **Verify the Event of Default** Confirm that an Event of Default under Section 5(a) of the ISDA has occurred and is continuing.

- **Designate an Early Termination Date** Serve a notice to the defaulting party specifying the Event of Default and designating an Early Termination Date for all outstanding transactions. This notice must be delivered in accordance with the notice provisions of the agreement.

- **Initiate the Valuation Process** Immediately begin the process of calculating the Close-out Amount. This involves assembling a team (traders, legal, risk, operations) to gather market data, solicit quotes, and run internal models.

- **Document Everything** Maintain a detailed audit trail of the entire valuation process. This includes records of all communications, quotes received (even if not used), market data sources, model parameters, and internal deliberations. This documentation is critical for demonstrating that commercially reasonable procedures were used.

- **Calculate the Final Close-out Amount** Consolidate all values, costs, and unpaid amounts into a single net figure.

- **Deliver the Close-out Statement** Provide the defaulting party with a statement showing the calculation of the Close-out Amount in reasonable detail.

- **Execute Set-Off** If applicable, apply the set-off provision (Section 6(f)) to net the Close-out Amount against any other amounts owed between the parties.

- **Demand Payment** Formally demand payment of the final net amount due on the specified payment date (typically two business days after the notice is effective).

This systematic execution ensures compliance with the heightened requirements of the 2002 ISDA and places the non-defaulting party in the strongest possible position should the calculation be challenged.

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## References

- Faegre Drinker Biddle & Reath LLP. “ISDA Master Agreement Close-out Provisions ▴ English Courts Highlight a Difference Between the 1992 and 2002 Versions.” 4 May 2018.

- “ISDA Comparison.” The Jolly Contrarian, 24 Sept. 2020.

- “High Court clarifies calculation of Close-out amount under 2002 ISDA Master Agreement.” Ashurst, 22 Mar. 2018.

- International Swaps and Derivatives Association. “Understanding the ISDA Master Agreements.” 16 Oct. 2018.

- “Derivatives Laws and Regulations Close-out Under the 1992 and 2002 ISDA Master Agreements 2025.” International Comparative Legal Guides, 17 Jun. 2025.

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## Reflection

The evolution from the 1992 to the 2002 ISDA framework is a testament to the market’s capacity for self-correction and architectural improvement. The knowledge of these protocols is more than an academic exercise; it is a component in a larger system of institutional risk intelligence. The principles of objectivity, transparency, and commercial reasonableness embedded in the 2002 Agreement are not merely legal standards. They are strategic imperatives.

How does your own firm’s internal framework for valuation and default management align with these principles? Does your operational playbook ensure the creation of a defensible, objective record, or does it rely on subjective legacy procedures? The strength of a financial institution’s risk architecture is truly tested in moments of crisis, and the 2002 ISDA provides a blueprint for resilience.

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## Glossary

<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">
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## 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/area/counterparty-risk/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
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## Counterparty Risk

Meaning ▴ Counterparty risk, within the domain of crypto investing and institutional options trading, represents the potential for financial loss arising from a counterparty's failure to fulfill its contractual obligations. </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/market-quotation/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
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## Market Quotation

Meaning ▴ A market quotation, or simply a quote, represents the most recent price at which an asset has traded or, more commonly in active markets, the current best bid and ask prices at which it can be immediately bought or sold. </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">
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## 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/question/how-do-courts-interpret-commercially-reasonable-procedures-in-close-out-amount-calculations/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
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## Commercially Reasonable Procedures

Courts interpret "commercially reasonable procedures" as an objective, evidence-based standard for valuing derivative close-outs. </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">
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## 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/objective-standard/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
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## Objective Standard

Meaning ▴ An Objective Standard is a criterion or benchmark based on verifiable facts, measurable data, or widely accepted principles, independent of personal opinions or subjective interpretations. </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 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)

## 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-master-agreement/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![A central RFQ aggregation engine radiates segments, symbolizing distinct liquidity pools and market makers. This depicts multi-dealer RFQ protocol orchestration for high-fidelity price discovery in digital asset derivatives, highlighting diverse counterparty risk profiles and algorithmic pricing grids](https://options.greeks.live/wp-content/uploads/2025/07/centralized-digital-asset-rfq-orchestration-for-multi-venue-liquidity-aggregation-and-high-fidelity-execution-across-diverse-counterparties.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/area/termination-events/?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)

## Termination Events

Meaning ▴ Termination Events define specific conditions or occurrences stipulated in legal agreements, such as ISDA Master Agreements prevalent in institutional options trading, that, when triggered, permit one or both parties to unilaterally terminate the contract. </a><a href="https://prime.greeks.live/area/1992-isda/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![An intricate mechanical assembly reveals the market microstructure of an institutional-grade RFQ protocol engine. It visualizes high-fidelity execution for digital asset derivatives block trades, managing counterparty risk and multi-leg spread strategies within a liquidity pool, embodying a Prime RFQ](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-derivatives-rfq-protocol-engine-architecture.jpg)

## 1992 Isda

Meaning ▴ The 1992 ISDA Master Agreement, a foundational contractual framework developed by the International Swaps and Derivatives Association, provides a standardized bilateral legal and operational structure for privately negotiated over-the-counter (OTC) derivatives transactions. </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 central dark aperture, like a precision matching engine, anchors four intersecting algorithmic pathways. Light-toned planes represent transparent liquidity pools, contrasting with dark teal sections signifying dark pool or latent liquidity](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-derivatives-rfq-protocol-execution-engine-9.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/second-method/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![An institutional grade RFQ protocol nexus, where two principal trading system components converge. A central atomic settlement sphere glows with high-fidelity execution, symbolizing market microstructure optimization for digital asset derivatives via Prime RFQ](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-derivatives-rfq-protocol-execution-microstructure-2.jpg)

## Second Method

Meaning ▴ The "Second Method" refers to an alternative or supplementary approach utilized for computation, valuation, or process execution, distinct from a primary method. </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">
![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)

## Market Data

Meaning ▴ Market data in crypto investing refers to the real-time or historical information regarding prices, volumes, order book depth, and other relevant metrics across various digital asset trading venues. </a><a href="https://prime.greeks.live/question/how-do-courts-interpret-commercially-reasonable-procedures-in-close-out-amount-calculations/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![A sleek, dark teal, curved component showcases a silver-grey metallic strip with precise perforations and a central slot. This embodies a Prime RFQ interface for institutional digital asset derivatives, representing high-fidelity execution pathways and FIX Protocol integration](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-derivatives-rfq-protocol-engine.jpg)

## Reasonable Procedures

Courts interpret "commercially reasonable procedures" as an objective, evidence-based standard for valuing derivative close-outs. </a><a href="https://prime.greeks.live/question/what-is-the-role-of-expert-determination-in-resolving-complex-derivatives-valuation-disputes/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![A dark central hub with three reflective, translucent blades extending. This represents a Principal's operational framework for digital asset derivatives, processing aggregated liquidity and multi-leg spread inquiries](https://options.greeks.live/wp-content/uploads/2025/07/institutional-rfq-protocol-engine-for-high-fidelity-digital-asset-derivatives.jpg)

## Valuation Process

Expert determination is a contractually-defined protocol for resolving derivatives valuation disputes through binding, specialized technical analysis. </a><a href="https://prime.greeks.live/area/set-off-provision/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![A sophisticated institutional digital asset derivatives platform unveils its core market microstructure. Intricate circuitry powers a central blue spherical RFQ protocol engine on a polished circular surface](https://options.greeks.live/wp-content/uploads/2025/08/institutional-digital-asset-derivatives-prime-os-unveiling-rfq-protocol-engine-market-microstructure-for-optimal-price-discovery-and-high-fidelity-execution.jpg)

## Set-Off Provision

Meaning ▴ A Set-Off Provision is a contractual clause or legal right that permits a party to offset mutual debts or claims owed to and by another party. </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">
![A refined object featuring a translucent teal element, symbolizing a dynamic RFQ for Institutional Grade Digital Asset Derivatives. Its precision embodies High-Fidelity Execution and seamless Price Discovery within complex Market Microstructure](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-derivatives-rfq-protocol-precision-for-optimal-execution-and-deep-liquidity-aggregation.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/isda-master-agreement/?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)

## 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/2002-isda/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![A sharp diagonal beam symbolizes an RFQ protocol for institutional digital asset derivatives, piercing latent liquidity pools for price discovery. Central orbs represent atomic settlement and the Principal's core trading engine, ensuring best execution and alpha generation within market microstructure](https://options.greeks.live/wp-content/uploads/2025/07/prime-os-rfq-protocol-for-institutional-digital-asset-derivatives-best-execution.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/early-termination-date/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![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](https://options.greeks.live/wp-content/uploads/2025/07/rfq-protocols-for-institutional-digital-asset-derivatives-prime-os-execution.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">
![Precisely engineered metallic components, including a central pivot, symbolize the market microstructure of an institutional digital asset derivatives platform. This mechanism embodies RFQ protocols facilitating high-fidelity execution, atomic settlement, and optimal price discovery for crypto options](https://options.greeks.live/wp-content/uploads/2025/07/high-fidelity-digital-asset-derivatives-rfq-market-microstructure-1.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>

**Tags:** [2002 ISDA](https://options.greeks.live/area/2002-isda/), [Events of Default](https://options.greeks.live/area/events-of-default/), [Early Termination](https://options.greeks.live/area/early-termination/), [Commercially Reasonable](https://options.greeks.live/area/commercially-reasonable/), [Counterparty Risk](https://options.greeks.live/area/counterparty-risk/), [OTC Derivatives](https://options.greeks.live/area/otc-derivatives/)	

## Discover More

- 
### [What Are the Primary Legal Risks When Determining a Derivatives Close out Amount?](https://options.greeks.live/question/what-are-the-primary-legal-risks-when-determining-a-derivatives-close-out-amount/)
![A central star-like form with sharp, metallic spikes intersects four teal planes, on black. This signifies an RFQ Protocol's precise Price Discovery and Liquidity Aggregation, enabling Algorithmic Execution for Multi-Leg Spread strategies, mitigating Counterparty Risk, and optimizing Capital Efficiency for institutional Digital Asset Derivatives.](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-derivatives-rfq-price-discovery-and-execution.jpg)

Determining a derivatives close-out amount is a legally fraught valuation of replacement costs, governed by a "commercially reasonable" standard.

- 
### [What Are the Primary Legal Defenses for a Determining Party’s Close-Out Calculation under the 2002 ISDA?](https://options.greeks.live/question/what-are-the-primary-legal-defenses-for-a-determining-partys-close-out-calculation-under-the-2002-isda/)
![Abstract depiction of an advanced institutional trading system, featuring a prominent sensor for real-time price discovery and an intelligence layer. Visible circuitry signifies algorithmic trading capabilities, low-latency execution, and robust FIX protocol integration for digital asset derivatives. This represents a principal's operational framework for optimized RFQ protocols and atomic settlement.](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-derivatives-prime-os-high-fidelity-rfq-protocols.jpg)

A defensible ISDA close-out calculation is the output of a system designed for objective reasonableness in both procedure and result.

- 
### [How Does the Close out Amount in the 2002 Isda Differ from Market Quotation?](https://options.greeks.live/question/how-does-the-close-out-amount-in-the-2002-isda-differ-from-market-quotation-2/)
![Sharp, intersecting geometric planes in teal, deep blue, and beige form a precise, pointed leading edge against darkness. This signifies High-Fidelity Execution for Institutional Digital Asset Derivatives, reflecting complex Market Microstructure and Price Discovery. It embodies RFQ optimization, Capital Efficiency across Liquidity Pools, and Atomic Settlement via a Prime RFQ.](https://options.greeks.live/wp-content/uploads/2025/07/high-fidelity-digital-asset-derivatives-rfq-market-microstructure-2.jpg)

The 2002 ISDA's Close-Out Amount replaces a rigid quoting procedure with a flexible, principles-based valuation standard.

- 
### [What Are the Primary Differences between the 1992 and 2002 ISDA Master Agreements regarding Default?](https://options.greeks.live/question/what-are-the-primary-differences-between-the-1992-and-2002-isda-master-agreements-regarding-default/)
![A precision-engineered metallic and glass system depicts the core of an Institutional Grade Prime RFQ, facilitating high-fidelity execution for Digital Asset Derivatives. Transparent layers represent visible liquidity pools and the intricate market microstructure supporting RFQ protocol processing, ensuring atomic settlement capabilities.](https://options.greeks.live/wp-content/uploads/2025/08/robust-institutional-digital-asset-derivatives-trading-platform-for-optimized-rfq-protocol-execution-and-deep-liquidity-access.jpg)

The 2002 ISDA Agreement enhances default protocols by replacing elective, rigid close-out methods with a single, commercially reasonable standard.

- 
### [How Does the 2002 ISDA Framework Mitigate Risks Present in the 1992 Agreement?](https://options.greeks.live/question/how-does-the-2002-isda-framework-mitigate-risks-present-in-the-1992-agreement/)
![Sleek, intersecting planes, one teal, converge at a reflective central module. This visualizes an institutional digital asset derivatives Prime RFQ, enabling RFQ price discovery across liquidity pools. It ensures high-fidelity execution for multi-leg spreads and atomic settlement within complex market microstructure.](https://options.greeks.live/wp-content/uploads/2025/07/prime-os-digital-asset-derivatives-rfq-engine-optimizing-institutional-liquidity-aggregation-and-best-execution.jpg)

The 2002 ISDA framework mitigates risk by accelerating default recognition and standardizing close-out mechanics for greater certainty.

- 
### [What Specific Documentation Is Essential to Create a Defensible Audit Trail for a Close out Valuation?](https://options.greeks.live/question/what-specific-documentation-is-essential-to-create-a-defensible-audit-trail-for-a-close-out-valuation/)
![A sharp, metallic blue instrument with a precise tip rests on a light surface, suggesting pinpoint price discovery within market microstructure. This visualizes high-fidelity execution of digital asset derivatives, highlighting RFQ protocol efficiency. It represents the intelligence layer of a Prime RFQ for atomic settlement.](https://options.greeks.live/wp-content/uploads/2025/07/precision-digital-asset-derivative-rfq-execution-market-microstructure-high-fidelity-alpha-generation-prime-os-system.jpg)

A defensible close-out audit trail is the complete, time-stamped evidence proving a valuation's 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.

- 
### [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.

- 
### [What Are the Differences between the 1992 and 2002 ISDA Close out Provisions?](https://options.greeks.live/question/what-are-the-differences-between-the-1992-and-2002-isda-close-out-provisions/)
![Sleek, modular system component in beige and dark blue, featuring precise ports and a vibrant teal indicator. This embodies Prime RFQ architecture enabling high-fidelity execution of digital asset derivatives through bilateral RFQ protocols, ensuring low-latency interconnects, private quotation, institutional-grade liquidity, and atomic settlement.](https://options.greeks.live/wp-content/uploads/2025/07/prime-os-rfq-system-interface-for-digital-asset-derivatives-execution.jpg)

The 2002 ISDA Agreement replaces the 1992 version's rigid valuation with a flexible, commercially reasonable standard for greater stability.

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---

**Original URL:** https://options.greeks.live/question/what-are-the-key-differences-between-the-1992-and-2002-isda-close-out-protocols/
