# What Is the Standard for Commercial Reasonability under the 2002 Isda? ▴ Question

**Published:** 2025-08-05
**Categories:** Question

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## Concept

The standard for [commercial reasonability](https://prime.greeks.live/area/commercial-reasonability/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) under the [2002 ISDA Master Agreement](https://prime.greeks.live/area/2002-isda-master-agreement/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) operates as the central governing principle for determining financial outcomes when a derivatives contract is terminated prematurely. Its function is to impose a quantifiable, objective, and defensible methodology upon the process of calculating a final settlement value, known as the Close-out Amount. This standard is embedded within the agreement’s architecture to ensure that the process of closing out transactions following an Event of Default or other Termination Event is grounded in observable market realities and fair dealing. It provides a structured framework that moves the calculation away from subjective estimations and toward a disciplined, evidence-based valuation.

The core of this standard is the dual requirement placed upon the party determining the settlement amount, the “Determining Party”. This party is mandated to employ “[commercially reasonable procedures](https://prime.greeks.live/area/commercially-reasonable-procedures/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite)” with the explicit goal of producing a “[commercially reasonable](https://prime.greeks.live/area/commercially-reasonable/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) result”.

> The legal interpretation of this clause has established an objective standard of reasonableness, compelling the Determining Party to act in a manner that a rational and informed market participant would, under similar circumstances.

This principle is a foundational element of the 2002 Agreement, reflecting a significant evolution from its 1992 predecessor. The earlier agreement relied on more rigid calculation methods, “Market Quotation” and “Loss,” which proved problematic in distressed or illiquid markets. The introduction of the “[Close-out Amount](https://prime.greeks.live/area/close-out-amount/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite)” and its associated standard of commercial reasonability provides the necessary flexibility to handle a wider array of market conditions and instrument types. It empowers the [Determining Party](https://prime.greeks.live/area/determining-party/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) to utilize a broad range of information sources, including third-party quotations, market data, and, under specific conditions, its own internal valuation models.

This flexibility is balanced by the overarching obligation to act in [good faith](https://prime.greeks.live/area/good-faith/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) and to justify the procedures and the resulting valuation as commercially sound. The standard effectively creates a system of checks and balances, where the procedural integrity of the valuation is just as important as the final number itself. It demands a transparent and logical process, capable of withstanding scrutiny and ensuring that the non-defaulting party is compensated fairly without penalizing the defaulting party excessively.

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## What Defines Commercially Reasonable Procedures?

Commercially reasonable procedures are the specific actions and methodologies a Determining Party undertakes to calculate the Close-out Amount. The 2002 [ISDA Master Agreement](https://prime.greeks.live/area/isda-master-agreement/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) deliberately avoids a prescriptive list, opting instead for a principles-based approach that allows for adaptation to various transaction types and market scenarios. The essence of these procedures is that they must be rational, transparent, and consistent with practices commonly used by participants in the relevant derivatives market. This involves a logical and documented process for gathering valuation inputs, selecting a calculation methodology, and arriving at a final figure.

The framework anticipates a hierarchy of information sources. The Determining Party is expected to first seek out external, objective data. This includes obtaining quotations from third-party dealers, consulting [relevant market](https://prime.greeks.live/question/beyond-twap-and-vwap-what-other-execution-algorithms-are-relevant-for-retail-traders/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) data feeds for pricing information, and considering any other reliable, independent sources. The use of internal data or proprietary models is permissible, particularly when external data is unavailable, unreliable, or would not produce a commercially reasonable result, as might be the case in a highly illiquid or disrupted market.

When internal data is used, the burden of proof is on the Determining Party to demonstrate that its reliance on such information was justified and that its models are consistent with industry standards. The procedures must be applied consistently and without bias, aimed solely at determining a fair market value for the [terminated transactions](https://prime.greeks.live/question/can-payment-netting-and-close-out-netting-apply-to-the-same-set-of-transactions/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite).

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## Strategy

The strategic implementation of the commercial reasonability standard within the 2002 ISDA [Master Agreement](https://prime.greeks.live/area/master-agreement/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) represents a fundamental shift in managing [counterparty credit risk](https://prime.greeks.live/area/counterparty-credit-risk/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) and contract termination. The primary strategic objective behind the move to the “Close-out Amount” was to create a more resilient and flexible valuation mechanism that could function effectively across diverse and volatile market conditions. This contrasts sharply with the more rigid methodologies of the 1992 Agreement, “Market Quotation” and “Loss,” which had revealed their limitations during various market crises.

The “[Market Quotation](https://prime.greeks.live/area/market-quotation/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite)” method required obtaining quotes from multiple dealers for a replacement transaction. This approach became unworkable in illiquid markets where dealers were unwilling or unable to provide firm quotes. The “Loss” method, which allowed the non-defaulting party to calculate its total losses and costs resulting from the termination, was often seen as too subjective and opaque, leading to disputes.

The 2002 Agreement’s “Close-out Amount” synthesizes the better aspects of both, creating a unified standard that prioritizes objectivity while allowing for necessary flexibility. This strategic change provides counterparties with greater certainty that a termination will result in a fair and defensible valuation, reducing the potential for protracted legal battles.

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## Evolution of ISDA Close-Out Methodologies

The transition from the 1992 framework to the 2002 standard was a direct response to market realities. The table below illustrates the core differences in the strategic approach to calculating termination payments, highlighting the increased sophistication and adaptability of the “Close-out Amount” methodology.

| Valuation Aspect | 1992 ISDA Master Agreement (Market Quotation / Loss) | 2002 ISDA Master Agreement (Close-out Amount) |
| --- | --- | --- |
| Primary Methodology | Two distinct options ▴ Market Quotation (requires multiple dealer quotes) or Loss (a broader calculation of damages). | A single, unified methodology ▴ the Close-out Amount. |
| Flexibility in Data | Market Quotation was rigid; Loss was subjective. Limited guidance on data sources. | High degree of flexibility. Allows use of third-party quotes, market data, and internal models. |
| Guiding Principle | Procedurally defined (get quotes) or broadly defined (calculate losses). | Governed by the principles of “good faith” and “commercial reasonability.” |
| Application in Illiquid Markets | Market Quotation often failed. Loss calculations were frequently disputed. | Specifically designed to be more robust and functional in illiquid or disrupted markets. |
| Dispute Potential | High, due to the rigidity of Market Quotation and the subjectivity of Loss. | Lowered, due to the focus on a transparent, defensible, and objectively reasonable process. |

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## Hierarchy of Valuation Inputs

A core strategic element of the commercial reasonability standard is the implicit hierarchy of data sources that a Determining Party should use. This hierarchy is designed to ground the valuation in objective, third-party data whenever possible, thereby enhancing its defensibility. While not explicitly ranked in a numbered list within the agreement, a logical progression is clearly intended.

- **External Quotations** ▴ The first preference is for obtaining quotes for replacement transactions from active, independent dealers in the relevant market. This provides the most direct evidence of the cost to replace the terminated trade.

- **Relevant [Market Data](https://prime.greeks.live/area/market-data/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite)** ▴ If firm quotes are not readily available, the next step is to consult other forms of market data. This can include pricing information from electronic platforms, data from inter-dealer brokers, volatility surfaces, and other verifiable data points that can be used to model the value of the terminated transactions.

- **Internal Data and Models** ▴ The use of internal, proprietary information is permitted as a fallback. The Determining Party may use its own [valuation models](https://prime.greeks.live/area/valuation-models/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) and internal data if it believes in good faith that external sources are unavailable or would produce a result that is not commercially reasonable. The key here is the justification; the party must be prepared to defend why external data was inadequate and why its internal methodology is sound.

> This structured yet flexible approach ensures that the valuation process is robust and adaptable, capable of handling everything from standard interest rate swaps to complex, exotic derivatives.

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## Execution

The execution of a Close-out Amount calculation is a meticulous process that demands rigorous documentation and adherence to a clear, defensible procedure. The Determining Party, acting as a [Calculation Agent](https://prime.greeks.live/area/calculation-agent/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite), must operate as a disciplined financial analyst, systematically gathering data, selecting appropriate valuation models, and documenting every step to prove that its actions were commercially reasonable. This operational playbook is essential for ensuring the final calculation is robust enough to withstand legal and financial scrutiny. The process begins the moment a termination event is triggered and requires a swift yet careful assembly of all relevant transaction data and market information.

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## Operational Playbook for Calculating the Close-Out Amount

A firm’s execution of this process should follow a structured, multi-stage approach. This ensures consistency, transparency, and compliance with the standard of commercial reasonability. The following table outlines a detailed operational workflow for a Determining Party.

| Procedural Step | Key Actions and Considerations | Documentation Requirement |
| --- | --- | --- |
| 1. Immediate Triage and Information Gathering | Identify all terminated transactions. Compile all relevant trade confirmations, amendments, and related credit support documents. Establish the exact time of the Early Termination Date for valuation purposes. | A complete file of all legal documents for each terminated transaction. A timeline of events leading to the termination. |
| 2. Market Data Snapshot and Source Selection | Capture a snapshot of all relevant market data as of the termination date. Begin outreach to at least three to five independent dealers for indicative or firm quotes for replacement transactions. Identify all available electronic pricing sources and market data feeds. | Logs of all communications with third-party dealers, including names, times, and responses. Saved copies of all electronic market data. |
| 3. Valuation Methodology Selection | Based on the availability and quality of external data, select the primary valuation method. If reliable quotes are available, a replacement cost methodology is preferred. If not, a model-based valuation using market data is appropriate. Document the rationale for the chosen method. | A formal memo detailing the valuation methodology, explaining why it was chosen over alternatives, and citing the market conditions that influenced the decision. |
| 4. Execution of Valuation and Calculation | Apply the chosen methodology to calculate the value of each terminated transaction. If using models, ensure they are industry-standard (e.g. Black-Scholes for simple options, more complex models for exotics) and that all inputs are documented. Aggregate the individual transaction values to arrive at a single Close-out Amount. | Detailed calculation spreadsheets showing all inputs, formulas, and outputs. A validation report for any models used, including calibration data. |
| 5. Final Review and Justification | Conduct an internal review of the entire process and the final amount. Prepare a comprehensive report that explains the procedures used, the data relied upon, and how the result is commercially reasonable. This report serves as the primary evidence of compliance. | The final Close-out Amount report, signed off by senior management or a designated risk committee. This report should be ready to be presented to the counterparty and, if necessary, a court. |

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## How Is Reasonability Judged in Practice?

In practice, the commercial reasonability of a Close-out Amount calculation is judged on both its procedural integrity and the substance of its outcome. A court or arbitral tribunal would examine the entire process undertaken by the Determining Party. They would assess whether the party genuinely surveyed the available market for pricing information, whether the valuation models used were appropriate for the types of transactions being valued, and whether there is any evidence of bad faith, such as the selective use of data to inflate or deflate the final amount.

Consider a scenario where a bank is the Determining Party for a portfolio of defaulted commodity swaps with an oil producer. A commercially reasonable procedure would involve:

- **Gathering Data** ▴ The bank would gather prices for crude oil futures contracts with corresponding maturities from major exchanges like NYMEX and ICE. It would also seek quotes from other commodity dealers for similar swaps.

- **Valuation** ▴ It would use this data to construct a forward curve and discount the future cash flows of the terminated swaps to the present value using an appropriate discount rate, such as the Overnight Index Swap (OIS) curve.

- **Documentation** ▴ Every data point, every quote request, and the full methodology for the net present value calculation would be meticulously documented. If the bank had to rely on its internal forward curve model because the market was disrupted, it would need to provide evidence of the model’s validity and why external data was unreliable at that specific time.

> The ultimate test is whether the final Close-out Amount reflects a fair and rational estimate of the market value of the terminated transactions at the time of termination.

This disciplined, evidence-based execution is the only way to ensure compliance with the [2002 ISDA](https://prime.greeks.live/area/2002-isda/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) Master Agreement’s standard of commercial reasonability. It transforms a potentially contentious process into a structured and defensible financial operation, safeguarding the interests of all parties and upholding the integrity of the derivatives market.

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## References

- Freshfields Bruckhaus Deringer LLP. “2002 ISDA® Master Agreement ▴ close-out amount.” Practical Law UK Articles w-014-5040, 3 May 2018.

- Rule, John. “The 2002 ISDA Master Agreement Made Simple.” Global Capital, 6 Jan. 2003.

- International Swaps and Derivatives Association. “2002 ISDA Master Agreement Protocol.” ISDA, 15 July 2003.

- International Swaps and Derivatives Association. “2002 ISDA Master Agreement Protocol Publication.” ISDA, 2003.

- Federal Deposit Insurance Corporation. “Schedule 2002 Master Agreement.” FDIC.

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## Reflection

The principles embedded within the 2002 ISDA Master Agreement offer more than a contractual mechanism; they provide a blueprint for institutional discipline. The standard of commercial reasonability is a powerful concept that extends far beyond the close-out of a derivatives contract. It compels a firm to look inward at its own valuation methodologies, its data sourcing integrity, and its capacity to produce a defensible outcome under pressure. How does your own operational framework measure up to this standard of objective, evidence-based reasoning?

Does your firm possess the procedural rigor to not only calculate a value but to defend it with a transparent and logical narrative? The knowledge of this standard is a component in a larger system of risk intelligence. Its true value is realized when its principles of fairness, objectivity, and procedural integrity are integrated into the core of a firm’s risk management philosophy, transforming a legal requirement into a strategic asset.

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## Glossary

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

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

Meaning ▴ Commercial Reasonability defines a critical system constraint ensuring that proposed transaction parameters, specifically price and quantity, align with prevailing market conditions and established internal thresholds. </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/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 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/determining-party/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
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## Determining Party

Meaning ▴ The Determining Party is the designated entity, system component, or algorithmic agent possessing the final and binding authority to initiate, validate, or conclude a specific event, transaction, or state transition within a defined operational framework. </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/area/good-faith/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
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## 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><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/question/beyond-twap-and-vwap-what-other-execution-algorithms-are-relevant-for-retail-traders/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
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## Relevant Market

Beyond TWAP and VWAP, retail traders leverage POV, Iceberg, and adaptive algorithms for dynamic, impact-managed execution. </a><a href="https://prime.greeks.live/question/can-payment-netting-and-close-out-netting-apply-to-the-same-set-of-transactions/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
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## Terminated Transactions

Yes, they apply to the same transactions but are temporally exclusive, shifting from an operational efficiency protocol to a default-triggered risk mitigation mechanism. </a><a href="https://prime.greeks.live/area/counterparty-credit-risk/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
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## Counterparty Credit Risk

Meaning ▴ Counterparty Credit Risk quantifies the potential for financial loss arising from a counterparty's failure to fulfill its contractual obligations before a transaction's final settlement. </a><a href="https://prime.greeks.live/area/master-agreement/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
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## Master Agreement

Meaning ▴ The Master Agreement is a foundational legal contract establishing a comprehensive framework for all subsequent transactions between two parties. </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/market-data/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![A sophisticated, multi-layered trading interface, embodying an Execution Management System EMS, showcases institutional-grade digital asset derivatives execution. Its sleek design implies high-fidelity execution and low-latency processing for RFQ protocols, enabling price discovery and managing multi-leg spreads with capital efficiency across diverse liquidity pools](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-derivatives-trading-platform-market-microstructure.jpg)

## 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/valuation-models/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![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)

## Valuation Models

Meaning ▴ Valuation Models represent quantitative frameworks and computational methodologies employed to determine the theoretical fair value of financial instruments, assets, or liabilities within a given market context. </a><a href="https://prime.greeks.live/area/calculation-agent/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![A central, intricate blue mechanism, evocative of an Execution Management System EMS or Prime RFQ, embodies algorithmic trading. Transparent rings signify dynamic liquidity pools and price discovery for institutional digital asset derivatives](https://options.greeks.live/wp-content/uploads/2025/07/precision-engineered-institutional-digital-asset-derivatives-framework-driving-high-fidelity-rfq-execution-and-optimized-market-microstructure-for-capital-efficiency.jpg)

## Calculation Agent

Meaning ▴ A Calculation Agent is a designated entity, typically a financial institution, responsible for independently determining specific financial parameters or values within a derivative contract or structured product. </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">
![Sharp, intersecting elements, two light, two teal, on a reflective disc, centered by a precise mechanism. This visualizes institutional liquidity convergence for multi-leg options strategies in digital asset derivatives](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-derivatives-rfq-block-trade-execution.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>

**Tags:** [Commercial Reasonability](https://options.greeks.live/area/commercial-reasonability/), [Market Quotation](https://options.greeks.live/area/market-quotation/), [2002 ISDA Master Agreement](https://options.greeks.live/area/2002-isda-master-agreement/), [Early Termination Date](https://options.greeks.live/area/early-termination-date/), [Close-Out Amount](https://options.greeks.live/area/close-out-amount/), [ISDA Master Agreement](https://options.greeks.live/area/isda-master-agreement/)	

## Discover More

- 
### [What Are the Primary Events of Default under the ISDA Master Agreements?](https://options.greeks.live/question/what-are-the-primary-events-of-default-under-the-isda-master-agreements/)
![A central, multi-layered cylindrical component rests on a highly reflective surface. This core quantitative analytics engine facilitates high-fidelity execution. The mirrored surface symbolizes a transparent liquidity pool, optimizing market microstructure for institutional digital asset derivatives via robust RFQ protocols. It's a critical element for efficient price discovery.](https://options.greeks.live/wp-content/uploads/2025/08/institutional-digital-asset-derivatives-rfq-engine-core-optimization.jpg)

The ISDA Events of Default are contractual triggers in the derivatives market's core operating system that enable a party to terminate trades and manage risk upon a counterparty's financial distress.

- 
### [What Are the Primary Grounds for Disputing a Close out Amount Calculated by an Internal Model?](https://options.greeks.live/question/what-are-the-primary-grounds-for-disputing-a-close-out-amount-calculated-by-an-internal-model/)
![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)

Grounds for disputing a close-out amount center on failures of the calculation to be commercially reasonable in procedure and result.

- 
### [What Are the Primary Differences in Collateral Rights between the 1992 and 2002 ISDA Forms?](https://options.greeks.live/question/what-are-the-primary-differences-in-collateral-rights-between-the-1992-and-2002-isda-forms/)
![Two off-white elliptical components separated by a dark, central mechanism. This embodies an RFQ protocol for institutional digital asset derivatives, enabling price discovery for block trades, ensuring high-fidelity execution and capital efficiency within a Prime RFQ for dark liquidity.](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-derivatives-rfq-protocol-engine-4.jpg)

The 2002 ISDA enhances collateral rights via a flexible "Close-out Amount" and mandatory two-way payments for greater valuation certainty.

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

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

- 
### [What Is the Strategic Importance of the Early Termination Date in a Derivatives Dispute?](https://options.greeks.live/question/what-is-the-strategic-importance-of-the-early-termination-date-in-a-derivatives-dispute/)
![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)

The Early Termination Date is a strategic trigger that crystallizes all derivative exposures into a single, net monetary claim.

- 
### [How Does the 2002 Isda Agreement Define a Commercially Reasonable Procedure?](https://options.greeks.live/question/how-does-the-2002-isda-agreement-define-a-commercially-reasonable-procedure/)
![Three metallic, circular mechanisms represent a calibrated system for institutional-grade digital asset derivatives trading. The central dial signifies price discovery and algorithmic precision within RFQ protocols. Outer elements reflect liquidity pool dynamics and high-fidelity execution in complex market microstructure, managing counterparty risk.](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-derivatives-rfq-protocols-and-execution-precision.jpg)

The 2002 ISDA Agreement defines a commercially reasonable procedure as an objective, good-faith valuation to find a terminated deal's economic equivalent.

- 
### [What Specific Documentation Should a Firm Prepare to Defend a Close-Out Amount Calculation under the 2002 Isda?](https://options.greeks.live/question/what-specific-documentation-should-a-firm-prepare-to-defend-a-close-out-amount-calculation-under-the-2002-isda/)
![An intricate, transparent cylindrical system depicts a sophisticated RFQ protocol for digital asset derivatives. Internal glowing elements signify high-fidelity execution and algorithmic trading. A central angular structure represents atomic settlement and multi-leg spread capabilities, ensuring best execution within institutional trading.](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-derivatives-rfq-execution-protocol-architecture.jpg)

A firm must prepare a detailed dossier evidencing the objective commercial reasonableness of its valuation process and result.

- 
### [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 Practical Implications of the Close-Out Amount for a Derivatives Trading Desk?](https://options.greeks.live/question/what-are-the-practical-implications-of-the-close-out-amount-for-a-derivatives-trading-desk/)
![Sharp, intersecting elements, two light, two teal, on a reflective disc, centered by a precise mechanism. This visualizes institutional liquidity convergence for multi-leg options strategies in digital asset derivatives. It embodies high-fidelity execution via RFQ protocol within a Principal's operational framework, leveraging algorithmic trading engines for capital efficiency.](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-derivatives-rfq-block-trade-execution.jpg)

The close-out amount is a defensible, calculated value that crystallizes a portfolio's worth upon contract termination.

---

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---

**Original URL:** https://options.greeks.live/question/what-is-the-standard-for-commercial-reasonability-under-the-2002-isda/
