# What Is the Difference between the 1992 and 2002 Isda Close out Provisions? ▴ Question

**Published:** 2025-08-17
**Categories:** Question

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## Concept

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## From Ambiguity to Precision in Counterparty Risk

The evolution from the 1992 to the 2002 International Swaps and Derivatives Association (ISDA) Master Agreement represents a critical upgrade in the operating system of the global derivatives market. This progression was not a matter of minor textual adjustments; it was a fundamental re-engineering of the protocols governing how financial institutions manage counterparty default. The core of this redesign lies within the [close-out provisions](https://prime.greeks.live/question/how-did-the-lehman-brothers-bankruptcy-influence-the-interpretation-of-isda-close-out-provisions/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite), which dictate the process for terminating transactions and calculating a final [settlement amount](https://prime.greeks.live/question/how-does-the-threshold-amount-interact-with-the-independent-amount/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) when a counterparty fails. Understanding the distinction between these two frameworks is essential for appreciating the market’s matured approach to systemic risk, moving from a system that allowed for significant subjectivity to one that mandates a more rigorous, transparent, and equitable process for resolving distressed exposures.

At the heart of the 1992 ISDA’s close-out mechanism was a choice between two distinct valuation methodologies ▴ “[Market Quotation](https://prime.greeks.live/area/market-quotation/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite)” and “Loss.” Market Quotation was designed to be an objective measure, derived from quotes solicited from leading dealers for replacement trades. In practice, during the very moments of market stress when it was most needed, obtaining these quotes became exceedingly difficult, rendering the mechanism fragile. The alternative, “Loss,” was an indemnity-based calculation, granting the [non-defaulting party](https://prime.greeks.live/question/what-are-the-primary-legal-and-financial-risks-when-a-non-defaulting-party-delays-termination/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) broad discretion to determine its total losses and costs in good faith.

This flexibility, while practical, introduced a level of subjectivity that could lead to disputes and perceptions of unfairness. The 1992 framework also contained the now-obsolete “First Method” payment option, a one-way payment system where a defaulting party could not receive a net gain, a provision widely viewed as punitive and largely abandoned in practice in favor of the two-way “Second Method.”

> The 2002 ISDA introduced a unified and objectively grounded valuation standard, replacing the bifurcated and less reliable methods of its predecessor.

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) emerged from the lessons learned during the market crises of the late 1990s, which exposed the structural weaknesses of the 1992 framework. Its primary innovation was the replacement of the dual valuation methods with a single, more robust concept ▴ the “Close-out Amount.” This new methodology was engineered to be a hybrid, combining the flexibility of the “Loss” calculation with stronger requirements for objectivity and transparency. It obligates the determining party to use “[commercially reasonable procedures](https://prime.greeks.live/area/commercially-reasonable-procedures/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) in order to produce a commercially reasonable result,” a standard that English courts have interpreted as requiring objective reasonableness in both the process and the outcome.

This shift represents a profound change in the system’s architecture, moving the determination of damages from a subjective assessment of one party’s internal losses to a more externally verifiable and defensible calculation of market-based replacement costs. This fundamental redesign enhances legal certainty and promotes fairness, reflecting a more sophisticated understanding of risk management in an increasingly interconnected financial system.

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## Strategy

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## Systemic Upgrades in Default Management Protocols

The strategic divergence between the 1992 and [2002 ISDA](https://prime.greeks.live/area/2002-isda/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) close-out provisions reveals a deliberate effort to enhance the stability and predictability of the over-the-counter (OTC) derivatives market. The 2002 Agreement is not merely an update but a strategic overhaul designed to address the operational vulnerabilities identified in its predecessor. The central strategic shift was the move from a menu of elective, and at times problematic, procedures to a single, standardized, and more resilient protocol for calculating termination payments. This transition reflects a strategic decision by the industry to prioritize legal certainty and procedural fairness over the broader, more ambiguous discretion afforded by the 1992 framework.

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## Valuation Philosophy a Fundamental Pivot

The most significant strategic departure lies in the philosophy of valuation upon default. The [1992 ISDA](https://prime.greeks.live/area/1992-isda/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) presented a choice that created inconsistency in the market, forcing parties to elect between the rigid “Market Quotation” and the highly discretionary “Loss” method. The 2002 ISDA’s “[Close-out Amount](https://prime.greeks.live/area/close-out-amount/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite)” consolidates these into a single, more sophisticated methodology.

It empowers the [determining party](https://prime.greeks.live/question/what-is-the-role-of-the-calculating-party-in-determining-the-final-settlement-amount/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) to use a wider array of inputs ▴ including third-party quotes, relevant [market data](https://prime.greeks.live/area/market-data/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite), and even internal information ▴ while holding it to a higher standard of objective, commercial reasonableness. This change was a direct response to the failure of the Market Quotation method to function effectively during periods of market turmoil, when dealer quotes become scarce or unreliable.

### Table 1 ▴ Comparison of Valuation Methodologies

| Feature | 1992 ISDA Master Agreement | 2002 ISDA Master Agreement |
| --- | --- | --- |
| Primary Calculation Method | Choice between “Market Quotation” (dealer quotes) and “Loss” (indemnity-based calculation). | A single, unified “Close-out Amount.” |
| Source of Valuation | Market Quotation relied on obtaining 3+ quotes from reference market-makers. Loss was based on the non-defaulting party’s internal determination of its losses and costs. | Can use third-party quotes, market data (yields, volatilities), and internal information, provided it is of the type used in the ordinary course of business. |
| Legal Standard for Determination | For “Loss,” the standard was subjective reasonableness or rationality (the “Wednesbury” test in English law). The party must not reach a determination no reasonable party could. | An objective, two-part test ▴ the party must use “commercially reasonable procedures” to produce a “commercially reasonable result.” |
| Flexibility in Stressed Markets | Market Quotation proved inflexible and often failed. Loss was flexible but highly subjective, leading to potential disputes. | Designed for greater flexibility and resilience, allowing for alternative valuation sources when quotes are unavailable or unreliable. |

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## Reinforcing the Contractual Framework

Beyond valuation, the 2002 ISDA introduced several other strategic enhancements to the default management process. These changes were designed to create a more comprehensive and responsive system for addressing credit events.

- 
**Elimination of One-Way Payments** ▴ The 1992 ISDA permitted the “First Method,” where only the non-defaulting party could receive a payment upon close-out. This was widely seen as punitive. The 2002 ISDA mandates [two-way payments](https://prime.greeks.live/area/two-way-payments/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite), ensuring that if the net value of the terminated trades is in favor of the defaulting party, a payment must be made to them. This creates a more equitable system.

- 
**Introduction of [Force Majeure](https://prime.greeks.live/area/force-majeure/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite)** ▴ The 2002 Agreement added a “Force Majeure” [Termination Event](https://prime.greeks.live/area/termination-event/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite). This provides a clear, no-fault pathway for terminating transactions when performance becomes impossible due to events outside a party’s control, a critical feature for a global market susceptible to geopolitical and other external shocks.

- 
**Standardized Set-Off Rights** ▴ While parties often added set-off provisions to the 1992 Schedule, the 2002 ISDA incorporates a standardized set-off right directly into the main agreement. This allows the non-defaulting party to net the final close-out amount against other amounts owed between the two parties under different agreements, providing greater clarity and efficiency in the [final settlement](https://prime.greeks.live/question/what-is-the-role-of-the-calculating-party-in-determining-the-final-settlement-amount/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) process.

> The 2002 ISDA framework was engineered to function robustly under stress, replacing procedural fragility with systemic resilience.

Collectively, these strategic modifications demonstrate a move toward a more standardized, transparent, and resilient market infrastructure. The 2002 ISDA reduces ambiguity, closes loopholes, and establishes clearer protocols that are better equipped to handle the complexities and pressures of a major counterparty default. The framework acknowledges that in a systemic crisis, legal and procedural clarity are paramount to maintaining market stability.

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## Execution

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## Operational Mechanics of the Close-Out Process

The execution of the close-out process 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, multi-step procedure that demands operational readiness and a deep understanding of the governing framework. The differences in the operational mechanics between the 1992 and 2002 versions are substantial, particularly concerning the determination of the final settlement amount. The 2002 Agreement imposes a more rigorous and documented process on the determining party, reflecting the market’s demand for greater transparency and accountability in the execution of a close-out.

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## Procedural Flow under the 1992 Agreement

Under the 1992 ISDA, the execution path for a non-defaulting party depended heavily on the pre-negotiated choice of either Market Quotation or Loss. This choice dictated the entire operational workflow for calculating the Settlement Amount.

- 
**Designation of an [Early Termination Date](https://prime.greeks.live/area/early-termination-date/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite)** ▴ Upon the occurrence of an Event of Default, the non-defaulting party provides notice to the defaulting party, designating an [Early Termination](https://prime.greeks.live/area/early-termination/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) Date for all outstanding transactions.

- 
**Calculation of Settlement Amount** ▴ The non-defaulting party proceeds with the calculation based on the elected method.

<li>
**If Market Quotation** ▴ The party was required to attempt to obtain quotes from at least three leading dealers (Reference Market-makers) for the replacement cost of the terminated transactions. The process had specific rules for averaging the quotes. If fewer than three quotes were obtainable, or if the method was believed to produce a commercially unreasonable result, the framework would revert to the [Loss method](https://prime.greeks.live/area/loss-method/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite).

- 
**If Loss** ▴ The party would calculate its total gains and losses resulting from the termination. This calculation was an internal process, guided by a [good faith](https://prime.greeks.live/area/good-faith/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) and reasonableness standard, but without a prescribed methodology, allowing for significant discretion.

</li>
- 
**Determination of Final Payment** ▴ The calculated Settlement Amount is combined with any Unpaid Amounts (payments that were due but not made prior to termination) to arrive at the final figure owed by one party to the other.

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## The Enhanced Execution Protocol of the 2002 Agreement

The 2002 ISDA streamlines the process by mandating a single calculation methodology, the Close-out Amount, but surrounds it with more demanding procedural requirements. The focus shifts from a choice of methods to a robust and defensible execution of a single, flexible method.

### Table 2 ▴ Operational Steps in Close-Out Execution

| Phase | 1992 ISDA Master Agreement | 2002 ISDA Master Agreement |
| --- | --- | --- |
| 1. Trigger Event | Occurrence of an Event of Default or Termination Event. | Occurrence of an Event of Default or Termination Event. |
| 2. Notice | Non-defaulting party issues a notice designating an Early Termination Date. | Non-defaulting party issues a notice designating an Early Termination Date. |
| 3. Valuation Calculation | Non-defaulting party calculates the “Settlement Amount” using the pre-selected “Market Quotation” or “Loss” method. | The “Determining Party” calculates the “Close-out Amount.” |
| 4. Procedural Requirements | For Market Quotation, a rigid process of soliciting dealer quotes. For Loss, a subjective good faith determination. | A flexible but rigorous process. The Determining Party must use “commercially reasonable procedures” and may consider quotes, market data, and internal models. A strong preference for using third-party data is stated unless it is unavailable or would not produce a reasonable result. |
| 5. Documentation and Justification | Minimal explicit requirement for documenting the “Loss” calculation beyond the good faith standard. | Implicitly requires a more thorough record-keeping process to demonstrate that both the procedures and the resulting amount were commercially reasonable and defensible upon review. |
| 6. Final Settlement | The Settlement Amount is netted with Unpaid Amounts. Payment is made based on the elected “First Method” or “Second Method.” | The Close-out Amount is netted with Unpaid Amounts to determine the “Early Termination Amount.” Payment is always on a two-way basis. |

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## A Stricter Standard of Commercial Reasonableness

The most critical aspect of executing a close-out under the 2002 ISDA is adhering to the heightened standard of commercial reasonableness. As established by English court rulings, this is not a subjective test of what the non-defaulting party believes is reasonable, but an objective one. The party must be prepared to demonstrate to an objective third party that its valuation process was sound and the final number was fair. This means that operational procedures must be in place to:

- 
**Systematically gather valuation data** ▴ This includes recording efforts to obtain third-party quotes, gathering relevant market data (e.g. yield curves, volatility surfaces), and, if internal models are used, being able to show that these models are consistent with those used in the normal course of business.

- 
**Document the decision-making process** ▴ Key decisions, such as the choice of valuation inputs or the reason for discarding certain quotes, should be documented to create a clear audit trail.

- 
**Ensure consistency** ▴ The valuation methodology should be applied consistently across similar types of terminated transactions.

This operational discipline is fundamental. The 2002 ISDA, by design, shifts the burden of proof more heavily onto the party performing the calculation. It demands a level of procedural rigor and transparency in execution that was not explicitly required by the 1992 framework, thereby creating a more stable and predictable system for resolving defaults in the global derivatives market.

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## References

- Charles, GuyLaine. “The ISDA Master Agreement ▴ Part II ▴ Negotiated Provisions.” Practical Compliance & Risk Management for the Securities Industry, May-June 2012.

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

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

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

- Mengle, David. “ISDA Master Agreement.” Financial Engineering, News, & Commentary, No. 2, 2010.

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## Reflection

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## An Evolving Architecture for Market Resilience

The transition from the 1992 to the 2002 ISDA close-out provisions is more than a historical footnote in contract law; it is a case study in the maturation of a market’s core operating system. The framework evolved to meet the demands of a more complex and interconnected financial world, replacing ambiguity with a mandate for objective, defensible action. This progression prompts a critical question for any market participant ▴ does your own operational framework for risk management and default scenarios possess the same level of clarity, robustness, and procedural integrity?

The knowledge of these provisions is a component of a larger system of intelligence. The ultimate strategic advantage lies in ensuring that internal protocols for valuation, documentation, and execution are not merely compliant, but are architected with the same principles of resilience and transparency that the market itself has learned to demand.

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## Glossary

<a href="https://prime.greeks.live/question/how-did-the-lehman-brothers-bankruptcy-influence-the-interpretation-of-isda-close-out-provisions/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
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## Close-Out Provisions

The Lehman bankruptcy stress-tested ISDA close-out provisions, shifting interpretations toward robust, model-based valuations and away from quote-based methods unworkable in a crisis. </a><a href="https://prime.greeks.live/question/how-does-the-threshold-amount-interact-with-the-independent-amount/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
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## Settlement Amount

The Independent Amount is a static buffer, while the Threshold is a dynamic trigger; their interplay defines the collateral call mechanism. </a><a href="https://prime.greeks.live/question/what-are-the-primary-legal-and-financial-risks-when-a-non-defaulting-party-delays-termination/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
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## Non-Defaulting Party

Delaying termination converts a contained credit event into an uncompensated grant of market and legal risk to the defaulting party. </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/commercially-reasonable-procedures/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
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## Commercially Reasonable Procedures

Meaning ▴ Commercially Reasonable Procedures defines the standard of conduct for actions taken within a financial context, mandating diligence and adherence to prevailing market practices and conditions. </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">
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## 2002 Isda Master Agreement

Meaning ▴ The 2002 ISDA Master Agreement represents a standardized bilateral contractual framework for over-the-counter (OTC) derivatives transactions. </a><a href="https://prime.greeks.live/area/2002-isda/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![An arc of interlocking, alternating pale green and dark grey segments, with black dots on light segments. This symbolizes a modular RFQ protocol for institutional digital asset derivatives, representing discrete private quotation phases or aggregated inquiry nodes](https://options.greeks.live/wp-content/uploads/2025/07/modular-rfq-protocol-segments-for-institutional-digital-asset-derivatives.jpg)

## 2002 Isda

Meaning ▴ The 2002 ISDA Master Agreement constitutes a standardized contractual framework, widely adopted within the over-the-counter (OTC) derivatives market, establishing foundational terms for bilateral derivatives transactions. </a><a href="https://prime.greeks.live/area/close-out-amount/?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)

## 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/area/1992-isda/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![A precisely engineered system features layered grey and beige plates, representing distinct liquidity pools or market segments, connected by a central dark blue RFQ protocol hub. Transparent teal bars, symbolizing multi-leg options spreads or algorithmic trading pathways, intersect through this core, facilitating price discovery and high-fidelity execution of digital asset derivatives via an institutional-grade Prime RFQ](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-derivatives-rfq-protocol-engine-facilitating-high-fidelity-multi-leg-options-spread-execution-best-price-discovery-and-latent-liquidity-access-for-prime-brokerage.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/what-is-the-role-of-the-calculating-party-in-determining-the-final-settlement-amount/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![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)

## Determining Party

The Calculating Party is the contractually designated entity that determines a derivative's value, ensuring precise financial settlement. </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">
![Abstract geometric forms, including overlapping planes and central spherical nodes, visually represent a sophisticated institutional digital asset derivatives trading ecosystem. It depicts complex multi-leg spread execution, dynamic RFQ protocol liquidity aggregation, and high-fidelity algorithmic trading within a Prime RFQ framework, ensuring optimal price discovery and capital efficiency](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-derivatives-rfq-protocol-liquidity-aggregation-market-microstructure-high-fidelity-execution-alpha-generation-prime-os-capital-efficiency.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/area/two-way-payments/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![Visualizes the core mechanism of an institutional-grade RFQ protocol engine, highlighting its market microstructure precision. Metallic components suggest high-fidelity execution for digital asset derivatives, enabling private quotation and block trade processing](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-derivatives-rfq-execution-engine-core-1.jpg)

## Two-Way Payments

Meaning ▴ Two-way payments represent a financial mechanism enabling bidirectional value transfer between two distinct entities or accounts within a single established channel. </a><a href="https://prime.greeks.live/area/termination-event/?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)

## Termination Event

Meaning ▴ A Termination Event denotes a pre-specified condition or set of criteria, contractually defined or algorithmically encoded, whose verified occurrence mandates the immediate cessation or unwinding of a financial agreement, especially prevalent within institutional digital asset derivatives. </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">
![Precision-engineered modular components, with transparent elements and metallic conduits, depict a robust RFQ Protocol engine. This architecture facilitates high-fidelity execution for institutional digital asset derivatives, enabling efficient liquidity aggregation and atomic settlement within market microstructure](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-derivatives-rfq-protocol-engine-optimizing-high-fidelity-execution-and-liquidity-aggregation.jpg)

## Force Majeure

Meaning ▴ Force Majeure designates a contractual clause excusing parties from fulfilling their obligations due to extraordinary events beyond their reasonable control, such as natural disasters, acts of war, or government prohibitions, which render performance impossible or commercially impracticable. </a><a href="https://prime.greeks.live/question/what-is-the-role-of-the-calculating-party-in-determining-the-final-settlement-amount/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![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)

## Final Settlement

The Calculating Party is the contractually designated entity that determines a derivative's value, ensuring precise financial settlement. </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">
![Precision cross-section of an institutional digital asset derivatives system, revealing intricate market microstructure. Toroidal halves represent interconnected liquidity pools, centrally driven by an RFQ protocol](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-derivatives-prime-os-architecture-revealing-precision-rfq-protocol-engine-for-optimal-high-fidelity-execution-and-latent-liquidity-aggregation.jpg)

## Isda Master Agreement

Meaning ▴ The ISDA Master Agreement is a standardized contractual framework for privately negotiated over-the-counter (OTC) derivatives transactions, establishing common terms for a wide array of financial instruments. </a><a href="https://prime.greeks.live/area/early-termination-date/?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)

## Early Termination Date

Meaning ▴ The Early Termination Date specifies a pre-agreed date or a date triggered by specific events, upon which a derivative contract or financial agreement concludes prior to its originally scheduled maturity. </a><a href="https://prime.greeks.live/area/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 ▴ 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/area/loss-method/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![Angular, reflective structures symbolize an institutional-grade Prime RFQ enabling high-fidelity execution for digital asset derivatives. A distinct, glowing sphere embodies an atomic settlement or RFQ inquiry, highlighting dark liquidity access and best execution within market microstructure](https://options.greeks.live/wp-content/uploads/2025/08/prime-os-digital-asset-derivatives-rfq-execution-protocol.jpg)

## 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/good-faith/?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)

## Good Faith

Meaning ▴ Good Faith, in a financial and operational context, denotes the adherence to honest intent and absence of fraudulent or deceptive conduct during contractual agreements and transactional processes. </a>

**Tags:** [Early Termination Date](https://options.greeks.live/area/early-termination-date/), [2002 ISDA](https://options.greeks.live/area/2002-isda/), [Market Quotation](https://options.greeks.live/area/market-quotation/), [Loss Method](https://options.greeks.live/area/loss-method/), [Force Majeure](https://options.greeks.live/area/force-majeure/), [Termination Event](https://options.greeks.live/area/termination-event/)	

## Discover More

- 
### [What Constitutes a Commercially Reasonable Procedure in a Derivatives Close-Out?](https://options.greeks.live/question/what-constitutes-a-commercially-reasonable-procedure-in-a-derivatives-close-out/)
![A teal sphere with gold bands, symbolizing a discrete digital asset derivative block trade, rests on a precision electronic trading platform. This illustrates granular market microstructure and high-fidelity execution within an RFQ protocol, driven by a Prime RFQ intelligence layer.](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-derivative-rfq-protocol-high-fidelity-execution-platform-microstructure-intelligence-layer.jpg)

A commercially reasonable procedure is an objective, evidence-based protocol for valuing a terminated derivative to ensure a fair result.

- 
### [What Are the Primary Differences in Valuation between the 1992 and 2002 ISDA Master Agreements?](https://options.greeks.live/question/what-are-the-primary-differences-in-valuation-between-the-1992-and-2002-isda-master-agreements/)
![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)

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

- 
### [How Does the 2002 ISDA Close-Out Amount Standard Reduce Legal Risk?](https://options.greeks.live/question/how-does-the-2002-isda-close-out-amount-standard-reduce-legal-risk/)
![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)

The 2002 ISDA Close-out Amount standard reduces legal risk by replacing rigid, brittle valuation rules with a flexible, yet objectively defensible, framework.

- 
### [What Constitutes a Commercially Reasonable Procedure under the 2002 ISDA Master Agreement?](https://options.greeks.live/question/what-constitutes-a-commercially-reasonable-procedure-under-the-2002-isda-master-agreement-2/)
![A multi-faceted crystalline structure, featuring sharp angles and translucent blue and clear elements, rests on a metallic base. This embodies Institutional Digital Asset Derivatives and precise RFQ protocols, enabling High-Fidelity Execution. Light interaction depicts Price Discovery within complex Market Microstructure, leveraging a Prime RFQ Intelligence Layer for Multi-Leg Spread optimization and Capital Efficiency.](https://options.greeks.live/wp-content/uploads/2025/07/high-fidelity-digital-asset-derivatives-rfq-market-microstructure.jpg)

A commercially reasonable procedure is an objectively verifiable valuation protocol, central to the 2002 ISDA's risk-mitigation architecture.

- 
### [How Did the 2008 Financial Crisis Influence the Interpretation of ISDA Close-Out Provisions?](https://options.greeks.live/question/how-did-the-2008-financial-crisis-influence-the-interpretation-of-isda-close-out-provisions/)
![A multi-faceted crystalline star, symbolizing the intricate Prime RFQ architecture, rests on a reflective dark surface. Its sharp angles represent precise algorithmic trading for institutional digital asset derivatives, enabling high-fidelity execution and price discovery. This encapsulates RFQ protocols, multi-leg spread optimization, capital efficiency, and market microstructure dynamics.](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-derivatives-rfq-protocols-high-fidelity-execution-market-microstructure-optimization-for-prime-os-alpha-generation.jpg)

The 2008 crisis shifted ISDA close-out interpretation from contractual certainty to a system focused on commercially reasonable valuations.

- 
### [How Does the Force Majeure Clause in the 2002 Isda Agreement Impact Termination Events?](https://options.greeks.live/question/how-does-the-force-majeure-clause-in-the-2002-isda-agreement-impact-termination-events/)
![A central teal column embodies Prime RFQ infrastructure for institutional digital asset derivatives. Angled, concentric discs symbolize dynamic market microstructure and volatility surface data, facilitating RFQ protocols and price discovery. Small fasteners denote precise atomic settlement and high-fidelity execution.](https://options.greeks.live/wp-content/uploads/2025/07/digital-asset-derivatives-rfq-protocol-alpha-generation-execution.jpg)

The 2002 ISDA Force Majeure clause provides a structured protocol for terminating trades during severe external disruptions.

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

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

- 
### [What Are the Core Differences between the 1992 and 2002 Isda Close-Out Methodologies?](https://options.greeks.live/question/what-are-the-core-differences-between-the-1992-and-2002-isda-close-out-methodologies/)
![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)

The 2002 ISDA replaces the 1992's subjective 'Loss' with an objective 'Close-Out Amount' based on commercial reasonableness.

- 
### [What Role Do Internal Valuation Models Play in a Defensible Close out Calculation?](https://options.greeks.live/question/what-role-do-internal-valuation-models-play-in-a-defensible-close-out-calculation/)
![A sophisticated institutional-grade system's internal mechanics. A central metallic wheel, symbolizing an algorithmic trading engine, sits above glossy surfaces with luminous data pathways and execution triggers. This abstract visualizes high-fidelity execution for digital asset derivatives, optimizing market microstructure and RFQ protocol efficiency within a Prime RFQ.](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-derivatives-rfq-execution-engine-core.jpg)

Internal valuation models are the core system for translating market data into a defensible close-out figure under ISDA protocols.

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        "1992 ISDA",
        "1992 ISDA Master Agreement",
        "2002 ISDA",
        "2002 ISDA Master Agreement",
        "Close-Out Amount",
        "Commercially Reasonable",
        "Commercially Reasonable Procedures",
        "Counterparty Risk",
        "Derivatives Close-Out",
        "Early Termination",
        "Early Termination Date",
        "Force Majeure",
        "Force Majeure Termination Event",
        "Good Faith",
        "ISDA Master Agreement",
        "Loss Method",
        "Market Data",
        "Market Quotation",
        "Termination Event",
        "Two-Way Payments"
    ]
}
```

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**Original URL:** https://options.greeks.live/question/what-is-the-difference-between-the-1992-and-2002-isda-close-out-provisions-2/
