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

**Published:** 2025-08-13
**Categories:** Question

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## Concept

The [ISDA Master Agreement](https://prime.greeks.live/area/isda-master-agreement/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) operates as the foundational charter for the global over-the-counter derivatives market, a systemically critical function that demands precision, predictability, and robustness under stress. Its evolution from the 1992 to the 2002 version reflects a direct response to market crises and the hard-won lessons of counterparty defaults. The core of this evolution resides in the mechanics of terminating transactions and calculating what is owed, a process known as close-out netting.

Understanding the shift in calculating these close-out amounts is to understand a fundamental recalibration in how the market quantifies and manages risk at the moment of failure. The amendments were not cosmetic; they were a structural overhaul designed to enhance stability and fairness in the financial system.

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## The Pre-2002 Close out Framework

The [1992 ISDA Master Agreement](https://prime.greeks.live/area/1992-isda-master-agreement/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) provided two distinct methodologies for calculating the [close-out amount](https://prime.greeks.live/area/close-out-amount/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) following a termination event ▴ Market Quotation and Loss. Parties would specify their chosen method in the Schedule to the Agreement. This choice had significant downstream consequences for how risk was managed and realized upon a counterparty default. The framework also contained a critical, and now largely obsolete, choice between “First Method” and “Second Method” for payments, which added another layer of complexity and potential inequity.

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## Market Quotation

The [Market Quotation](https://prime.greeks.live/area/market-quotation/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) method was designed to be the more objective of the two choices. The process required the [non-defaulting party](https://prime.greeks.live/question/what-are-the-key-procedural-steps-for-a-non-defaulting-party-under-the-2002-isda/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) to seek quotes from at least three leading dealers in the relevant market for a replacement transaction that would replicate the economic profile of the terminated trade. The amount payable would be based on the average of these quotes. The intent was to arrive at a fair market value by polling active, expert participants.

However, its procedural rigidity became a significant vulnerability during periods of market stress. In illiquid or volatile markets, obtaining the required number of firm quotes from dealers was often impossible, causing the method to fail and forcing the parties to fall back to the [Loss method](https://prime.greeks.live/area/loss-method/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite).

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## Loss

The Loss method was a more subjective calculation. It entitled the non-[defaulting party](https://prime.greeks.live/question/what-are-the-key-procedural-steps-for-a-non-defaulting-party-under-the-2002-isda/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) to determine, in good faith, the total losses and costs it incurred as a result of the [early termination](https://prime.greeks.live/area/early-termination/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite). This could include the cost of replacement trades, hedging costs, and other associated expenses. While flexible, this flexibility came at a cost.

The calculation was inherently self-determined, which could lead to disputes. The standard for assessing this determination was one of rationality ▴ that the [determining party](https://prime.greeks.live/question/what-are-the-primary-legal-risks-when-acting-as-the-determining-party-in-a-close-out/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) did not reach a conclusion that no reasonable party in its position would have. This subjective standard, while providing a necessary fallback, lacked the objective, third-party validation inherent in the Market Quotation ideal.

> The choice between the objective but brittle Market Quotation and the flexible but contentious Loss method defined the risk landscape of the 1992 agreement.

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## The First Method and Second Method a Critical Distinction

Compounding the choice of calculation was the payment methodology. The [1992 ISDA](https://prime.greeks.live/area/1992-isda/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) offered two options:

- **The [First Method](https://prime.greeks.live/area/first-method/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) ([Limited Two-Way Payments](https://prime.greeks.live/question/how-can-a-firm-prove-best-execution-when-using-a-limited-dealer-rfq/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite))** ▴ Under this construct, if the net close-out amount was a positive value for the non-defaulting party, the defaulting party had to pay. However, if the net amount was positive for the defaulting party (meaning the non-defaulting party was out-of-the-money), the non-defaulting party could “walk away” and was not obligated to pay. This approach was heavily criticized for its inequity and for creating perverse incentives, as it could result in a windfall for the non-defaulting party at the expense of the defaulting party’s other creditors.

- **The [Second Method](https://prime.greeks.live/area/second-method/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) ([Full Two-Way Payments](https://prime.greeks.live/area/full-two-way-payments/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite))** ▴ This method required a payment to be made to whichever party was in-the-money on a net basis, regardless of their status as the defaulting or non-defaulting party. This is the universally accepted standard today, as it ensures that the close-out process is a true reflection of the market value of the terminated positions, rather than a punitive measure.

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## Strategy

The transition from the 1992 ISDA Agreement to the 2002 version represents a significant strategic shift in the philosophy of risk management and counterparty default. The changes were not merely procedural tweaks; they were a deliberate redesign aimed at increasing objectivity, fairness, and operational resilience in volatile market conditions. The introduction of a single, unified “Close-out Amount” was the centerpiece of this strategic overhaul, replacing the bifurcated and often problematic Market Quotation/Loss framework and definitively eliminating the concept of one-way payments.

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## Abandoning the Bifurcated Model

The primary strategic driver for the [2002 ISDA](https://prime.greeks.live/area/2002-isda/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) was the recognition that the 1992 framework could fail when it was needed most. The reliance on Market Quotation, while sound in theory, proved impractical during systemic crises. The new agreement abandoned the dual-method approach in favor of a single, more flexible standard ▴ the “Close-out Amount.”

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## The Unified “Close-Out Amount”

The 2002 ISDA introduced a consolidated definition of the amount payable on termination. The “Close-out Amount” is a figure representing the losses or gains arising from the termination, to be determined by the non-defaulting party. The critical distinction is the standard to which this determination is held. The calculating party must use “[commercially reasonable procedures](https://prime.greeks.live/question/what-are-the-legal-ramifications-of-failing-to-use-commercially-reasonable-procedures/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) in order to produce a [commercially reasonable result](https://prime.greeks.live/question/what-constitutes-a-commercially-unreasonable-result-in-a-derivatives-close-out-scenario/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite).” This introduces a higher, more objective standard than the “rationality” test applied to the Loss calculation under the 1992 Agreement.

This new standard comprises two distinct obligations:

- **[Commercially Reasonable](https://prime.greeks.live/area/commercially-reasonable/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) Procedures** ▴ The process used to arrive at the valuation must be sound. This involves considering a range of information sources without being rigidly bound to any single one.

- **Commercially Reasonable Result** ▴ The outcome of the calculation must be fair and in line with what an objective third party would consider reasonable. This moves the assessment from the subjective perspective of the determining party to an objective market standard.

This unified approach provides far greater flexibility. The determining party is no longer forced to seek a specific number of quotes. Instead, it can use a variety of inputs to inform its calculation, including:

- Quotations from third-party dealers (even a single quote can be sufficient if commercially reasonable).

- Relevant [market data](https://prime.greeks.live/area/market-data/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) from information providers.

- Information from internal sources, such as the firm’s own valuation models, provided they are used in the regular course of business.

> The 2002 ISDA’s “Close-out Amount” replaces procedural rigidity with a mandate for commercial reasonableness, enhancing stability in turbulent markets.

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## The End of Optionality in Payments

A second, equally important strategic shift was the complete removal of the “First Method” (limited [two-way payments](https://prime.greeks.live/question/can-multilateral-netting-be-applied-to-third-party-payments-in-addition-to-intercompany-transactions/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite)). The 2002 ISDA mandates full two-way payments in all circumstances. This change was crucial for aligning the agreement with international insolvency principles, which generally prohibit the forfeiture of a debtor’s assets. By ensuring that a defaulting party is still entitled to receive payment if the net value of the terminated trades is in its favor, the 2002 Agreement promotes fairness and reduces systemic risk by treating all creditors more equitably.

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## Comparative Framework 1992 Vs 2002 Close out Provisions

The table below provides a systematic comparison of the key strategic differences in the close-out mechanics between the two agreements.

| Feature | 1992 ISDA Master Agreement | 2002 ISDA Master Agreement |
| --- | --- | --- |

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## Execution

The execution of a close-out under an ISDA [Master Agreement](https://prime.greeks.live/question/in-what-ways-does-the-single-agreement-principle-of-the-isda-master-agreement-differ-from-traditional-contract-law/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) is a critical risk management function. The shift from the 1992 to the 2002 framework has profound implications for the operational procedures, data requirements, and internal systems of any institution engaged in [OTC derivatives](https://prime.greeks.live/area/otc-derivatives/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite). The 2002 Agreement, with its mandate for “commercially reasonable” conduct, demands a more sophisticated and defensible execution process compared to its predecessor.

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## The Operational Playbook for a 2002 ISDA Close Out

Executing a close-out under the 2002 ISDA requires a systematic and well-documented process. The following steps outline an operational playbook for a non-defaulting party tasked with determining the Close-out Amount.

- **Designation of [Early Termination Date](https://prime.greeks.live/area/early-termination-date/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite)** ▴ Upon an Event of Default, the non-defaulting party must effectively designate an Early Termination Date by serving notice to the defaulting party. All outstanding transactions under the agreement will be terminated as of this date.

- **Portfolio Reconciliation** ▴ Immediately compile and reconcile a definitive list of all terminated transactions. This ensures both parties agree on the scope of the portfolio being closed out. Any discrepancies must be resolved promptly.

- **Information Gathering** ▴ This is the core of the “commercially [reasonable procedures](https://prime.greeks.live/question/what-are-the-legal-ramifications-of-failing-to-use-commercially-reasonable-procedures/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite).” The determining party must gather valuation information from a range of sources. This process should be documented meticulously. Sources may include:

<li>**Indicative Quotes** ▴ Solicit indicative or firm quotes for replacement trades from several market-making dealers. Unlike the 1992 Market Quotation, there is no fixed number required. The focus is on the quality and relevance of the quotes.

- **Market Data Services** ▴ Obtain relevant market data (e.g. yield curves, volatility surfaces, credit spreads) from third-party providers like Bloomberg, Refinitiv, or other specialized services.

- **Internal Valuations** ▴ Generate valuations using the firm’s own internal, independently-validated pricing models. The use of these models must be consistent with how they are used in the normal course of business for risk management and reporting.

- **Evidence of Replacement Hedges** ▴ If the party enters into actual replacement trades to hedge its exposure, the price of these trades is a powerful piece of evidence for the Close-out Amount.

</li>
- **Determination and Calculation** ▴ Synthesize the gathered information to arrive at a single Close-out Amount. This is not a simple averaging exercise. The determining party must weigh the different data points based on their quality, relevance, and proximity to the Early Termination Date. The entire rationale for the final figure must be recorded.

- **Issuance of the Close-out Statement** ▴ Prepare and deliver a statement to the defaulting party showing the calculation in reasonable detail. This statement should list the terminated transactions and the final Close-out Amount, along with the net sum payable and the payment date.

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## Quantitative Modeling a Hypothetical Close out Scenario

To illustrate the execution, consider a hypothetical close-out of a small derivatives portfolio. A non-defaulting party, Bank A, terminates its transactions with a defaulting counterparty, Hedge Fund B, under a 2002 ISDA. The Early Termination Date is set for August 14, 2025.

The portfolio consists of two trades:

- An Interest Rate Swap (IRS) where Bank A pays a fixed rate of 2.5% and receives SOFR on a notional of $50 million.

- A USD/EUR Forward contract where Bank A will buy €20 million and sell USD at a rate of 1.0800.

Bank A’s valuation team executes the following “commercially reasonable procedures”:

### Table 2 ▴ Data Synthesis for Close-out Amount Calculation

| Transaction | Valuation Source | Valuation (USD) | Commentary |
| --- | --- | --- | --- |

Bank A documents its methodology, noting that it weighted the actual replacement cost of the FX forward most heavily and used a blend of [dealer quotes](https://prime.greeks.live/question/what-are-the-primary-differences-between-firm-quotes-and-last-look-quotes-in-rfq-systems/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) and internal models for the IRS. This documented, multi-faceted approach provides a robust defense that the resulting Close-out Amount of +$940,000 is commercially reasonable.

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## References

- Firth, J. (2011). “Derivatives ▴ Law and Practice.” Sweet & Maxwell.

- International Swaps and Derivatives Association. (2003). “User’s Guide to the 2002 ISDA Master Agreement.” ISDA Publications.

- Johnson, C. & Taylor, A. (2012). “The ISDA Master Agreement ▴ A Practical Guide.” Globe Law and Business.

- Mengle, D. (2010). “The ISDA Master Agreement ▴ A Practical Guide for Negotiating.” Palgrave Macmillan.

- Flavell, A. (2010). “The Credit Support Annexes to the ISDA Master Agreement ▴ A Practical Guide.” Globe Law and Business.

- P. C. Ali, and S. A. G. L. A. (2015). “Islamic Banking and Finance ▴ An Introduction.” Edward Elgar Publishing.

- Schwarcz, S. L. (2008). “The ‘Walkaway’ Provision of the ISDA Master Agreement.” Duke Law Journal, 58(4), 801-835.

- Henderson, S. K. (2010). “Henderson on Derivatives.” LexisNexis.

- Gregory, J. (2014). “The xVA Challenge ▴ Counterparty Credit Risk, Funding, Collateral, and Capital.” Wiley Finance.

- Kenyon, C. & Green, A. (2015). “Mastering the 2002 ISDA Master Agreement.” Financial Times/Prentice Hall.

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## Reflection

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## From Procedural Mandate to Reasonableness

The evolution of the ISDA Master Agreement’s close-out provisions is a testament to the market’s capacity for self-correction. The framework moved from a rigid, procedural mandate to a principles-based standard of commercial reasonableness. This places a greater burden of judgment on the determining party, requiring them to construct a valuation that is not just procedurally correct but substantively fair. It demands an operational architecture capable of synthesizing diverse data points into a single, defensible number.

The ultimate measure of success for any institution’s derivatives operation lies in its ability to execute this process with precision and integrity, particularly when market conditions are at their most severe. The strength of the legal documentation is only realized through the quality of its execution.

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## 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 is a standardized contractual framework for privately negotiated over-the-counter (OTC) derivatives transactions, establishing common terms for a wide array of financial instruments. </a><a href="https://prime.greeks.live/area/1992-isda-master-agreement/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
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## 1992 Isda Master Agreement

Meaning ▴ The 1992 ISDA Master Agreement is a standardized bilateral contract document published by the International Swaps and Derivatives Association, serving as the primary legal framework for over-the-counter derivative transactions between two parties. </a><a href="https://prime.greeks.live/area/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 definitive financial value required to terminate a derivatives contract or position, typically calculated upon a default event or a pre-defined termination trigger. </a><a href="https://prime.greeks.live/question/what-are-the-key-procedural-steps-for-a-non-defaulting-party-under-the-2002-isda/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
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## Non-Defaulting Party

The Non-Defaulting Party's key procedure is to terminate trades and calculate a net close-out amount with commercial reason. </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 represents the current executable bid and ask prices for a specific financial instrument, typically accompanied by the corresponding tradable sizes or market depth at various price levels. </a><a href="https://prime.greeks.live/area/loss-method/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
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## Loss Method

Meaning ▴ The Loss Method defines a pre-established framework for allocating and distributing financial deficits among participants within a structured financial system, typically activated following a default event or during periods of significant market stress. </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 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)

## Early Termination

Meaning ▴ A contractual provision or systemic mechanism enabling pre-scheduled cessation of a derivative instrument or financial agreement prior to its original maturity. </a><a href="https://prime.greeks.live/question/what-are-the-key-procedural-steps-for-a-non-defaulting-party-under-the-2002-isda/?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)

## Defaulting Party

The Non-Defaulting Party's key procedure is to terminate trades and calculate a net close-out amount with commercial reason. </a><a href="https://prime.greeks.live/question/what-are-the-primary-legal-risks-when-acting-as-the-determining-party-in-a-close-out/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![A dark, precision-engineered module with raised circular elements integrates with a smooth beige housing. It signifies high-fidelity execution for institutional RFQ protocols, ensuring robust price discovery and capital efficiency in digital asset derivatives market microstructure](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-rfq-system-core-high-speed-price-discovery-module.jpg)

## Determining Party

The Determining Party's primary legal risk is a challenge to its close-out valuation's "commercial reasonableness.". </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">
![A complex, multi-layered electronic component with a central connector and fine metallic probes. This represents a critical Prime RFQ module for institutional digital asset derivatives trading, enabling high-fidelity execution of RFQ protocols, price discovery, and atomic settlement for multi-leg spreads with minimal latency](https://options.greeks.live/wp-content/uploads/2025/08/institutional-digital-asset-rfq-engine-driving-best-execution-and-liquidity.jpg)

## 1992 Isda

Meaning ▴ The 1992 ISDA Master Agreement represents a standardized contractual framework for privately negotiated over-the-counter (OTC) derivative transactions between two counterparties. </a><a href="https://prime.greeks.live/question/how-can-a-firm-prove-best-execution-when-using-a-limited-dealer-rfq/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![A sleek metallic device with a central translucent sphere and dual sharp probes. This symbolizes an institutional-grade intelligence layer, driving high-fidelity execution for digital asset derivatives](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-derivatives-rfq-execution-platform-precision.jpg)

## Limited Two-Way Payments

Proving best execution in a limited RFQ requires a defensible data architecture that substantiates every decision. </a><a href="https://prime.greeks.live/area/first-method/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![Intersecting angular structures symbolize dynamic market microstructure, multi-leg spread strategies. Translucent spheres represent institutional liquidity blocks, digital asset derivatives, precisely balanced](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-derivatives-rfq-execution-platform-4.jpg)

## First Method

Meaning ▴ The "First Method" denotes the default or primary execution algorithm configured within an institutional digital asset trading system, representing a highly optimized, low-latency pathway designed for standard order flow. </a><a href="https://prime.greeks.live/area/full-two-way-payments/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![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)

## Full Two-Way Payments

Meaning ▴ Full Two-Way Payments denotes a foundational financial system capability that enables the symmetrical and simultaneous movement of funds or collateral between two distinct entities, facilitating both gross and net settlement flows without inherent directional constraints. </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">
![A sophisticated proprietary system module featuring precision-engineered components, symbolizing an institutional-grade Prime RFQ for digital asset derivatives. Its intricate design represents market microstructure analysis, RFQ protocol integration, and high-fidelity execution capabilities, optimizing liquidity aggregation and price discovery for block trades within a multi-leg spread environment](https://options.greeks.live/wp-content/uploads/2025/07/institutional-grade-proprietary-architecture-driving-high-fidelity-digital-asset-derivatives-execution-via-rfq-protocols-and-optimized-market-microstructure-dynamics.jpg)

## Second Method

Meaning ▴ The Second Method designates an alternative, specialized execution protocol or pricing mechanism within a digital asset derivatives trading system, distinct from primary methodologies. </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 transparent glass sphere rests precisely on a metallic rod, connecting a grey structural element and a dark teal engineered module with a clear lens. This symbolizes atomic settlement of digital asset derivatives via private quotation within a Prime RFQ, showcasing high-fidelity execution and capital efficiency for RFQ protocols and liquidity aggregation](https://options.greeks.live/wp-content/uploads/2025/07/architecting-high-fidelity-execution-for-institutional-digital-asset-derivatives-rfq-protocols-and-systemic-liquidity-aggregation.jpg)

## 2002 Isda

Meaning ▴ The 2002 ISDA Master Agreement constitutes a standardized contractual framework, widely adopted within the over-the-counter (OTC) derivatives market, establishing foundational terms for bilateral derivatives transactions. </a><a href="https://prime.greeks.live/question/what-are-the-legal-ramifications-of-failing-to-use-commercially-reasonable-procedures/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![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)

## Commercially Reasonable Procedures

Failing to use commercially reasonable procedures shifts the burden of proof, jeopardizing a creditor's right to a deficiency judgment. </a><a href="https://prime.greeks.live/question/what-constitutes-a-commercially-unreasonable-result-in-a-derivatives-close-out-scenario/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![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)

## Commercially Reasonable Result

A commercially unreasonable result in a derivatives close-out is a valuation that fails the test of objective market-based evidence. </a><a href="https://prime.greeks.live/area/commercially-reasonable/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![A specialized hardware component, showcasing a robust metallic heat sink and intricate circuit board, symbolizes a Prime RFQ dedicated hardware module for institutional digital asset derivatives. It embodies market microstructure enabling high-fidelity execution via RFQ protocols for block trade and multi-leg spread](https://options.greeks.live/wp-content/uploads/2025/08/prime-os-dedicated-hardware-for-institutional-rfq-execution.jpg)

## Commercially Reasonable

Meaning ▴ Commercially Reasonable refers to actions, terms, or conditions that a prudent party would undertake or accept in a similar business context, aiming to achieve a desired outcome efficiently and effectively while considering prevailing market conditions, industry practices, and available alternatives. </a><a href="https://prime.greeks.live/area/market-data/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![Brushed metallic and colored modular components represent an institutional-grade Prime RFQ facilitating RFQ protocols for digital asset derivatives. The precise engineering signifies high-fidelity execution, atomic settlement, and capital efficiency within a sophisticated market microstructure for multi-leg spread trading](https://options.greeks.live/wp-content/uploads/2025/08/institutional-grade-digital-asset-derivatives-rfq-protocol-high-fidelity-execution-system.jpg)

## Market Data

Meaning ▴ Market Data comprises the real-time or historical pricing and trading information for financial instruments, encompassing bid and ask quotes, last trade prices, cumulative volume, and order book depth. </a><a href="https://prime.greeks.live/question/can-multilateral-netting-be-applied-to-third-party-payments-in-addition-to-intercompany-transactions/?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)

## Two-Way Payments

Multilateral netting can be applied to third-party payments, transforming it into a payment factory that centralizes and optimizes cash flow. </a><a href="https://prime.greeks.live/question/in-what-ways-does-the-single-agreement-principle-of-the-isda-master-agreement-differ-from-traditional-contract-law/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![A symmetrical, high-tech digital infrastructure depicts an institutional-grade RFQ execution hub. Luminous conduits represent aggregated liquidity for digital asset derivatives, enabling high-fidelity execution and atomic settlement](https://options.greeks.live/wp-content/uploads/2025/07/prime-os-institutional-digital-asset-derivatives-rfq-system.jpg)

## Master Agreement

The ISDA's Single Agreement principle architects a unified risk entity, replacing severable contracts with one indivisible agreement to enable close-out netting. </a><a href="https://prime.greeks.live/area/otc-derivatives/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![Abstract geometric design illustrating a central RFQ aggregation hub for institutional digital asset derivatives. Radiating lines symbolize high-fidelity execution via smart order routing across dark pools](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-derivatives-rfq-high-fidelity-execution-architecture.jpg)

## Otc Derivatives

Meaning ▴ OTC Derivatives are bilateral financial contracts executed directly between two counterparties, outside the regulated environment of a centralized exchange. </a><a href="https://prime.greeks.live/area/early-termination-date/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![A robust, dark metallic platform, indicative of an institutional-grade execution management system. Its precise, machined components suggest high-fidelity execution for digital asset derivatives via RFQ protocols](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-derivatives-rfq-execution-platform-high-fidelity-price-discovery-and-atomic-settlement-infrastructure.jpg)

## Early Termination Date

Meaning ▴ The Early Termination Date specifies a pre-agreed date or a date triggered by specific events, upon which a derivative contract or financial agreement concludes prior to its originally scheduled maturity. </a><a href="https://prime.greeks.live/question/what-are-the-legal-ramifications-of-failing-to-use-commercially-reasonable-procedures/?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)

## Reasonable Procedures

Failing to use commercially reasonable procedures shifts the burden of proof, jeopardizing a creditor's right to a deficiency judgment. </a><a href="https://prime.greeks.live/question/what-are-the-primary-differences-between-firm-quotes-and-last-look-quotes-in-rfq-systems/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![An Institutional Grade RFQ Engine core for Digital Asset Derivatives. This Prime RFQ Intelligence Layer ensures High-Fidelity Execution, driving Optimal Price Discovery and Atomic Settlement for Aggregated Inquiries](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-derivatives-rfq-engine-core-high-fidelity.jpg)

## Dealer Quotes

Firm quotes offer binding execution certainty, while last look quotes provide conditional pricing with a final provider-side rejection option. </a>

**Tags:** [1992 ISDA Master Agreement](https://options.greeks.live/area/1992-isda-master-agreement/), [Close-Out Amount](https://options.greeks.live/area/close-out-amount/), [First Method](https://options.greeks.live/area/first-method/), [Loss Method](https://options.greeks.live/area/loss-method/), [Full Two-Way Payments](https://options.greeks.live/area/full-two-way-payments/), [Financial Regulation](https://options.greeks.live/area/financial-regulation/)	

## Discover More

- 
### [How Does the 2002 ISDA Master Agreement Differ from the 1992 Version regarding Netting?](https://options.greeks.live/question/how-does-the-2002-isda-master-agreement-differ-from-the-1992-version-regarding-netting/)
![A cutaway reveals the intricate market microstructure of an institutional-grade platform. Internal components signify algorithmic trading logic, supporting high-fidelity execution via a streamlined RFQ protocol for aggregated inquiry and price discovery within a Prime RFQ.](https://options.greeks.live/wp-content/uploads/2025/07/high-fidelity-execution-for-digital-asset-derivatives-via-rfq-protocols.jpg)

The 2002 ISDA Agreement enhances netting by replacing rigid valuation with a commercially reasonable standard for greater certainty.

- 
### [How Does the 2002 Isda Close out Amount Differ from the 1992 Agreement?](https://options.greeks.live/question/how-does-the-2002-isda-close-out-amount-differ-from-the-1992-agreement/)
![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)

The 2002 ISDA Close-Out Amount replaces subjective valuation with an objective standard of commercial reasonableness for greater certainty.

- 
### [What Are the Primary Differences between the 1992 ISDA and the 2002 ISDA Agreements?](https://options.greeks.live/question/what-are-the-primary-differences-between-the-1992-isda-and-the-2002-isda-agreements/)
![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. The reflective surface suggests deep Liquidity Pool access for Block Trade and Private Quotation protocols.](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-derivatives-rfq-protocol-precision-for-optimal-execution-and-deep-liquidity-aggregation.jpg)

The 2002 ISDA enhances risk protocols with a flexible 'Close-out Amount' and adds a 'Force Majeure' event, improving on the 1992 version.

- 
### [What Are the Key Differences between the 1992 and 2002 Isda Agreements?](https://options.greeks.live/question/what-are-the-key-differences-between-the-1992-and-2002-isda-agreements/)
![Brushed metallic and colored modular components represent an institutional-grade Prime RFQ facilitating RFQ protocols for digital asset derivatives. The precise engineering signifies high-fidelity execution, atomic settlement, and capital efficiency within a sophisticated market microstructure for multi-leg spread trading.](https://options.greeks.live/wp-content/uploads/2025/08/institutional-grade-digital-asset-derivatives-rfq-protocol-high-fidelity-execution-system.jpg)

The 2002 ISDA Agreement replaced the 1992 version's subjective "Loss" with an objective "Close-out Amount" for greater legal certainty.

- 
### [What Are the Key Differences between the 1992 and 2002 ISDA Close out Calculation Methods?](https://options.greeks.live/question/what-are-the-key-differences-between-the-1992-and-2002-isda-close-out-calculation-methods/)
![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 replaces the 1992's optional methods with a single, objectively reasonable "Close-out Amount."

- 
### [How Does the 2002 Isda Master Agreement Differ from the 1992 Version regarding Close Out?](https://options.greeks.live/question/how-does-the-2002-isda-master-agreement-differ-from-the-1992-version-regarding-close-out/)
![A robust, dark metallic platform, indicative of an institutional-grade execution management system. Its precise, machined components suggest high-fidelity execution for digital asset derivatives via RFQ protocols. The textured surface implies granular market microstructure data, supporting price discovery and atomic settlement for block trades within a prime brokerage framework.](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-derivatives-rfq-execution-platform-high-fidelity-price-discovery-and-atomic-settlement-infrastructure.jpg)

The 2002 ISDA Agreement replaces the 1992 version's rigid close-out methods with a flexible, 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.

- 
### [How Can a Firm Prove Its Close-Out Calculation Was Commercially Reasonable in Court?](https://options.greeks.live/question/how-can-a-firm-prove-its-close-out-calculation-was-commercially-reasonable-in-court/)
![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. It signifies Market Microstructure Optimization and Atomic Settlement on a Prime RFQ.](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-derivatives-rfq-protocol-principal-operational-framework-market-microstructure-high-fidelity-execution.jpg)

A firm proves its close-out calculation was commercially reasonable by systematically executing a pre-defined, evidence-based valuation protocol.

- 
### [How Does the 2002 ISDA Close-Out Amount Differ from the 1992 Loss Calculation?](https://options.greeks.live/question/how-does-the-2002-isda-close-out-amount-differ-from-the-1992-loss-calculation/)
![An institutional-grade platform's RFQ protocol interface, with a price discovery engine and precision guides, enables high-fidelity execution for digital asset derivatives. Integrated controls optimize market microstructure and liquidity aggregation within a Principal's operational framework.](https://options.greeks.live/wp-content/uploads/2025/07/proprietary-institutional-digital-asset-derivatives-rfq-protocol-engine-facilitating-high-fidelity-execution-and-granular-market-microstructure-analysis-for-prime-os.jpg)

The 2002 ISDA's Close-Out Amount mandates an objectively reasonable process, replacing the 1992's more subjective Loss standard.

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---

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