# Why Was the 1992 Isda's Market Quotation Method Problematic in a Crisis? ▴ Question

**Published:** 2025-08-06
**Categories:** Question

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## Concept

The 1992 International Swaps and Derivatives Association’s (ISDA) Market Quotation methodology was an architectural design predicated on a fundamental, and ultimately flawed, assumption ▴ the perpetual availability of a liquid, orderly market populated by willing participants. Its central mechanism required the [non-defaulting party](https://prime.greeks.live/area/non-defaulting-party/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite), upon a counterparty’s failure, to poll a selection of “[Reference Market-Makers](https://prime.greeks.live/area/reference-market-makers/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite)” to obtain quotes for the cost of replacing the terminated derivatives portfolio. This protocol functioned adequately under conditions of normal market volatility. Its catastrophic failure occurred when the system was subjected to the one event it was designed to protect against a full-blown credit crisis.

During a systemic event, such as the collapse of Lehman Brothers in 2008, the very market-makers who were supposed to provide these stabilizing quotes were themselves under extreme duress. They were either unwilling to take on new risk, unable to price complex derivatives in a market devoid of liquidity, or had defaulted themselves. The protocol’s reliance on external polling in a decentralized, over-the-counter market created a critical point of failure.

When the polled dealers refused to provide quotes, or provided quotes with exceptionally wide bid-ask spreads to reflect the immense risk, the [Market Quotation method](https://prime.greeks.live/area/market-quotation-method/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) could not produce a stable or fair valuation. This operational paralysis revealed a deep structural weakness in 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)’s architecture.

> The Market Quotation method’s dependency on dealer polling created a system that was functional in calm seas but destined to sink in a storm.

The consequence was a procedural breakdown. The agreement stipulated that if a sufficient number of quotes ▴ typically three or more ▴ could not be obtained, the valuation would revert to a secondary method known as “Loss.” This fallback required the non-defaulting party to calculate its total losses and costs in “[good faith](https://prime.greeks.live/area/good-faith/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite).” This shift from a supposedly objective, market-based poll to a subjective, internally calculated figure introduced immense uncertainty and became a fertile ground for protracted, costly legal disputes. The problem with the 1992 method was its brittle design; it was a fair-weather system whose core logic dissolved under the precise conditions of market stress it was meant to manage, leaving counterparties with an unreliable and contentious process for settling massive, open positions.

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## Strategy

The strategic deficiency of the [Market Quotation](https://prime.greeks.live/area/market-quotation/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) method lies in its failure to account for the systemic behavior of markets under duress. It was a protocol built on a microeconomic view of risk ▴ that individual dealer quotes could be aggregated into a fair market price ▴ while ignoring the macroeconomic reality that in a crisis, the entire quoting infrastructure could seize simultaneously. This created a fragile dependency, turning a risk mitigation tool into a source of systemic instability itself.

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## Why Did the Quoting Mechanism Fail Strategically?

The strategic failure can be deconstructed into several interconnected flaws. The primary issue was the assumption that Reference Market-Makers would act as disinterested arbiters of price. In a crisis, these institutions are active, and often distressed, participants.

Their motivations shift from market-making to self-preservation. This introduces severe [adverse selection](https://prime.greeks.live/area/adverse-selection/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) and moral hazard into the close-out process.

- **Adverse Selection** ▴ The dealers most willing to provide a quote in a chaotic market might be those who see a strategic advantage in doing so, potentially pricing the replacement transaction at a level that is punitive to one of the parties. A dealer facing its own liquidity constraints would provide a quote reflecting its own high cost of funding, a price that has little to do with the objective value of the terminated trades. 

- **Information Asymmetry** ▴ In a crisis, information is fragmented and unreliable. A dealer’s quote would be based on its own limited view of the market and its own risk book. Aggregating a small number of these fragmented, biased viewpoints does not necessarily produce a clear picture of the true [replacement cost](https://prime.greeks.live/area/replacement-cost/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite). 

- **Breakdown of the Polling Process** ▴ The protocol required the non-defaulting party to solicit quotes from multiple dealers. This process is operationally cumbersome and slow, particularly when dealing with thousands of transactions. During the Lehman default, counterparties found it nearly impossible to get the required number of quotes, leading to a cascade of failures in the valuation process. 

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## A Comparative Analysis of Close out Methodologies

The evolution from the 1992 Agreement’s dual-track system to the 2002 Agreement’s unified “[Close-out Amount](https://prime.greeks.live/area/close-out-amount/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite)” reflects a significant strategic shift. The system moved from a rigid, externally dependent process to a more flexible, internally driven but [commercially reasonable](https://prime.greeks.live/area/commercially-reasonable/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) standard. The table below outlines the core architectural differences.

| Feature | 1992 ISDA Market Quotation | 1992 ISDA Loss (Fallback) | 2002 ISDA Close-out Amount |
| --- | --- | --- | --- |
| Primary Calculation Method | Based on obtaining quotes for replacement transactions from 3-4 Reference Market-Makers. | An amount the determining party reasonably determines in good faith to be its total losses and costs. | A single, unified calculation performed by the determining party based on a standard of “commercially reasonable procedures.” |
| Dependency | Highly dependent on the willingness and ability of external third-party dealers to provide quotes. | Dependent on the internal models and subjective “good faith” judgment of the non-defaulting party. | Internally determined but benchmarked against objective market data and established practices where available. |
| Flexibility | Extremely rigid. The process is prescriptive, and failure to secure enough quotes forces a fallback. | Highly flexible, but this flexibility leads to disputes over what constitutes “good faith.” | Designed to be flexible, allowing the use of internal models, market data, and quotes, as long as the overall process is commercially reasonable. |
| Potential for Dispute | High, due to the likelihood of the mechanism failing in a crisis and disagreements over whether quotes are commercially reasonable. | Very high, as the “good faith” standard is inherently subjective and open to legal challenges. | Lowered, as the “commercially reasonable” standard provides a more objective benchmark for courts to evaluate than “good faith.” |

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## The Strategic Shift to Commercial Reasonableness

The introduction of the “Close-out Amount” in 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) was a direct response to the strategic failures of the 1992 framework. It internalized the calculation process but bound it with an objective standard of commercial reasonableness. This new architecture empowers the non-defaulting party to use a variety of inputs ▴ including its own [internal models](https://prime.greeks.live/area/internal-models/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite), indicative quotes from third parties, and relevant market data ▴ to arrive at a valuation.

The key is that the process must be defensible. This provides the flexibility needed to operate in a distressed market while establishing a clearer legal standard, reducing the ambiguity that plagued the “Loss” methodology and giving counterparties greater certainty in a crisis.

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## Execution

The execution of a close-out under the [1992 ISDA](https://prime.greeks.live/area/1992-isda/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite)’s Market Quotation method was a procedural minefield during a crisis. The operational steps, which appeared logical on paper, became practically impossible to execute when market infrastructure seized. Understanding this failure requires a granular look at the process and its breakdown under stressed conditions.

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## Case Study a Crisis Scenario

Imagine a scenario on September 16, 2008, the day after Lehman Brothers filed for bankruptcy. A mid-sized bank, “Surviving Bank,” has a large portfolio of interest rate swaps with “Failed Bank,” which has just become a defaulting party under their 1992 [ISDA Master Agreement](https://prime.greeks.live/area/isda-master-agreement/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite). Surviving Bank is “in-the-money” and needs to calculate the termination payment owed to it. The agreement specifies Market Quotation as the valuation method.

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## Step 1 the Futile Dealer Poll

Surviving Bank’s operations team is tasked with polling five pre-agreed Reference Market-Makers to get quotes for a replacement portfolio. The team contacts the derivatives desks at these major institutions. The results are a stark illustration of a market in chaos.

> In a crisis, the very concept of a “Reference Market-Maker” becomes a theoretical construct, as institutions prioritize survival over market-making obligations.

| Reference Market-Maker | Response to Quote Request | Reasoning / Market Color |
| --- | --- | --- |
| Dealer A | No Quote | “We are not pricing any new positions at this time. Our focus is on managing our own exposure to Failed Bank.” |
| Dealer B | No Quote | “Our credit committee has frozen all new counterparty risk until further notice. We cannot provide a two-way market.” |
| Dealer C | Indicative Quote Only (Withdrawn) | Provided a verbal, extremely wide bid-ask spread, but refused to provide a firm, executable quote, citing unprecedented volatility. |
| Dealer D | No Quote | The head of the swaps desk was unavailable, and the team was overwhelmed with their own margin calls and unwinds. |
| Dealer E | Quote Provided | Provided a quote that was significantly off-market, reflecting a massive liquidity premium and credit risk charge. The quote was deemed not commercially reasonable by Surviving Bank. |

The Market Quotation method has failed. Surviving Bank was unable to obtain the three firm quotes required. The process now falls back to the “Loss” methodology, shifting the burden of calculation entirely onto Surviving Bank and opening the door for a protracted dispute.

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## Step 2 the Subjectivity of the Loss Calculation

Surviving Bank’s internal valuation team now has to calculate its “Loss” in “good faith.” This involves estimating the cost of replacing the swap portfolio, along with any associated hedging and funding costs. The team uses its internal models, but the inputs are highly uncertain.

- **Determining Replacement Cost** ▴ Without market quotes, the team must use a mark-to-model approach. The model’s output is highly sensitive to assumptions about future interest rates and volatility, which are extremely unstable. 

- **Calculating Funding Costs** ▴ Surviving Bank must factor in the cost of funding the replacement trade. In the midst of the 2008 crisis, interbank lending has frozen, and funding costs have skyrocketed. The bank’s treasury department provides a high internal cost of funds, which significantly increases the calculated Loss. 

- **Quantifying “Loss of Bargain”** ▴ The 1992 agreement allows for the inclusion of “loss of bargain.” Surviving Bank’s legal team argues this includes the loss of a stable, long-term hedging relationship, adding another layer of subjective valuation to the claim. 

Surviving Bank calculates its Loss at $75 million and submits this to Failed Bank’s administrators. The administrators, tasked with preserving value for all of Failed Bank’s creditors, immediately challenge the calculation. They argue that Surviving Bank’s funding cost assumptions are punitive and self-serving, and that the “loss of bargain” claim is unsubstantiated. They produce their own calculation, based on more conservative assumptions, valuing the Loss at only $40 million.

The result is a $35 million gap and the beginning of a multi-year legal battle, freezing liquidity that Surviving Bank desperately needs. This scenario, played out across thousands of ISDA agreements, demonstrates how the 1992 method’s execution flaws amplified [systemic risk](https://prime.greeks.live/area/systemic-risk/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) during the [financial crisis](https://prime.greeks.live/area/financial-crisis/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite).

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## References

- Firla-Cuchra, M. (2009). The ISDA Master Agreement and CSA ▴ Close-out Weaknesses Exposed in the Banking Crisis and Suggestions for Change. Mayer Brown.

- International Swaps and Derivatives Association. (2008). Market Practice Note on 1992 ISDA Master Agreement. ISDA.

- Mengle, D. (2010). The ISDA Master Agreement ▴ A Practical Guide to the Negotation and Use of the ISDA Master Agreement. Palgrave Macmillan.

- Flavell, A. (2010). Swaps and Other Derivatives (2nd ed.). John Wiley & Sons.

- Hudson, A. (2012). The Law of Finance. Sweet & Maxwell.

- Gregory, J. (2014). The xVA Challenge ▴ Counterparty Credit Risk, Funding, Collateral, and Capital. John Wiley & Sons.

- Phelan, R. (1995). The 1992 ISDA Master Agreement ▴ A Guide for U.S. Parties. The Business Lawyer, 50(2), 751 ▴ 789.

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## Reflection

The evolution from the 1992 Market Quotation protocol to the 2002 Close-out Amount framework is more than a technical update to a legal document. It represents a fundamental shift in the philosophy of risk management architecture. It is an acknowledgment that in a truly systemic crisis, a system’s resilience is determined by its internal integrity, its flexibility, and its capacity to function when external dependencies fail.

The failure of the 1992 method forces a critical question upon any institution ▴ are your own risk management protocols and legal frameworks designed for the world as it normally is, or are they engineered to withstand the world as it can become during a period of maximum stress? The knowledge of this historical failure is a critical component in designing the robust, anti-fragile operational systems required to navigate modern financial markets.

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## Glossary

<a href="https://prime.greeks.live/area/reference-market-makers/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
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## Reference Market-Makers

Meaning ▴ Reference Market-Makers are designated or recognized liquidity providers within a trading system whose quoted prices or executed trades serve as benchmarks or inputs for pricing models, especially in opaque or fragmented markets like those for certain crypto assets or institutional options. </a><a href="https://prime.greeks.live/area/non-defaulting-party/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
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## Non-Defaulting Party

Meaning ▴ A Non-Defaulting Party refers to the participant in a financial contract, such as a derivatives agreement or lending facility within the crypto ecosystem, that has fully adhered to its obligations while the other party has failed to do so. </a><a href="https://prime.greeks.live/area/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 serves as a foundational contractual framework in traditional finance, establishing uniform terms and conditions for over-the-counter (OTC) derivatives transactions between two parties. </a><a href="https://prime.greeks.live/area/market-quotation-method/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
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## Market Quotation Method

Meaning ▴ The Market Quotation Method refers to the process by which prices for financial instruments are determined and communicated in a trading environment, reflecting prevailing supply and demand. </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, within the intricate and often trust-minimized architecture of crypto financial systems, denotes the principle of honest intent, fair dealing, and transparent conduct in all participant interactions and contractual agreements. </a><a href="https://prime.greeks.live/area/market-quotation/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
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## Market Quotation

Meaning ▴ A market quotation, or simply a quote, represents the most recent price at which an asset has traded or, more commonly in active markets, the current best bid and ask prices at which it can be immediately bought or sold. </a><a href="https://prime.greeks.live/area/adverse-selection/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
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## Adverse Selection

Meaning ▴ Adverse selection in the context of crypto RFQ and institutional options trading describes a market inefficiency where one party to a transaction possesses superior, private information, leading to the uninformed party accepting a less favorable price or assuming disproportionate risk. </a><a href="https://prime.greeks.live/area/replacement-cost/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
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## Replacement Cost

Meaning ▴ Replacement Cost, within the specialized financial architecture of crypto, denotes the total expenditure required to substitute an existing asset with a new asset of comparable utility, functionality, or equivalent current market value. </a><a href="https://prime.greeks.live/area/commercially-reasonable/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
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## Commercially Reasonable

Meaning ▴ "Commercially Reasonable" is a legal and business standard requiring parties to a contract to act in a practical, prudent, and sensible manner, consistent with prevailing industry practices and good faith. </a><a href="https://prime.greeks.live/area/close-out-amount/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
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## Close-Out Amount

Meaning ▴ The Close-Out Amount represents the aggregated net sum due between two parties upon the early termination or default of a master agreement, encompassing all outstanding obligations across multiple transactions. </a><a href="https://prime.greeks.live/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 is the foundational legal document published by the International Swaps and Derivatives Association, designed to standardize the contractual terms for privately negotiated (Over-the-Counter) derivatives transactions between two counterparties globally. </a><a href="https://prime.greeks.live/area/internal-models/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
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## Internal Models

Meaning ▴ Within the sophisticated systems architecture of institutional crypto trading and comprehensive risk management, Internal Models are proprietary computational frameworks developed and rigorously maintained by financial firms. </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">
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## 1992 Isda

Meaning ▴ The 1992 ISDA Master Agreement, a foundational contractual framework developed by the International Swaps and Derivatives Association, provides a standardized bilateral legal and operational structure for privately negotiated over-the-counter (OTC) derivatives transactions. </a><a href="https://prime.greeks.live/area/isda-master-agreement/?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)

## Isda Master Agreement

Meaning ▴ The ISDA Master Agreement, while originating in traditional finance, serves as a crucial foundational legal framework for institutional participants engaging in over-the-counter (OTC) crypto derivatives trading and complex RFQ crypto transactions. </a><a href="https://prime.greeks.live/area/financial-crisis/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![A polished blue sphere representing a digital asset derivative rests on a metallic ring, symbolizing market microstructure and RFQ protocols, supported by a foundational beige sphere, an institutional liquidity pool. A smaller blue sphere floats above, denoting atomic settlement or a private quotation within a Principal's Prime RFQ for high-fidelity execution](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-derivatives-market-microstructure-and-rfq-protocols.jpg)

## Financial Crisis

Meaning ▴ A Financial Crisis refers to a severe, systemic disruption within financial markets and institutions, characterized by rapid and substantial declines in asset values, widespread bankruptcies, and a significant contraction in economic activity. </a><a href="https://prime.greeks.live/area/systemic-risk/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![A bifurcated sphere, symbolizing institutional digital asset derivatives, reveals a luminous turquoise core. This signifies a secure RFQ protocol for high-fidelity execution and private quotation](https://options.greeks.live/wp-content/uploads/2025/08/institutional-digital-asset-derivatives-rfq-protocol-orchestration.jpg)

## Systemic Risk

Meaning ▴ Systemic Risk, within the evolving cryptocurrency ecosystem, signifies the inherent potential for the failure or distress of a single interconnected entity, protocol, or market infrastructure to trigger a cascading, widespread collapse across the entire digital asset market or a significant segment thereof. </a>

**Tags:** [Non-Defaulting Party](https://options.greeks.live/area/non-defaulting-party/), [Internal Models](https://options.greeks.live/area/internal-models/), [Commercially Reasonable](https://options.greeks.live/area/commercially-reasonable/), [Market Quotation](https://options.greeks.live/area/market-quotation/), [Good Faith](https://options.greeks.live/area/good-faith/), [1992 ISDA Master Agreement](https://options.greeks.live/area/1992-isda-master-agreement/)	

## Discover More

- 
### [How Has the Calculation of Close out Amounts Evolved Operationally since the 2008 Crisis?](https://options.greeks.live/question/how-has-the-calculation-of-close-out-amounts-evolved-operationally-since-the-2008-crisis/)
![Sharp, intersecting geometric planes in teal, deep blue, and beige form a precise, pointed leading edge against darkness. This signifies High-Fidelity Execution for Institutional Digital Asset Derivatives, reflecting complex Market Microstructure and Price Discovery. It embodies RFQ optimization, Capital Efficiency across Liquidity Pools, and Atomic Settlement via a Prime RFQ.](https://options.greeks.live/wp-content/uploads/2025/07/high-fidelity-digital-asset-derivatives-rfq-market-microstructure-2.jpg)

The 2008 crisis forced close-out calculations to evolve from rigid quote-based rules to a flexible, principles-based objective standard.

- 
### [How Does the Close out Amount Calculation Promote Greater Objectivity than the Previous First Method?](https://options.greeks.live/question/how-does-the-close-out-amount-calculation-promote-greater-objectivity-than-the-previous-first-method/)
![Stacked precision-engineered circular components, varying in size and color, rest on a cylindrical base. This modular assembly symbolizes a robust Crypto Derivatives OS architecture, enabling high-fidelity execution for institutional RFQ protocols. It embodies layered liquidity aggregation, optimized price discovery within market microstructure, and capital efficiency for digital asset derivatives.](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-rfq-protocol-architecture-optimized-for-high-fidelity-execution.jpg)

The Close-Out Amount mandates a valuation based on objective, market-driven replacement costs, ensuring a fair and defensible process.

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

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

- 
### [Can a Determining Party Unilaterally Revise a Close out Calculation after It Has Been Issued?](https://options.greeks.live/question/can-a-determining-party-unilaterally-revise-a-close-out-calculation-after-it-has-been-issued/)
![A central processing core with intersecting, transparent structures revealing intricate internal components and blue data flows. This symbolizes an institutional digital asset derivatives platform's Prime RFQ, orchestrating high-fidelity execution, managing aggregated RFQ inquiries, and ensuring atomic settlement within dynamic market microstructure, optimizing capital efficiency.](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-derivatives-trading-system-facilitating-high-fidelity-rfq-protocol-optimization-for-best-execution-and-atomic-settlement.jpg)

A Determining Party cannot unilaterally revise a close-out calculation; the process is designed for binding finality.

- 
### [How Does the 2002 Isda Master Agreement Differ from the 1992 Version regarding Close out Amounts?](https://options.greeks.live/question/how-does-the-2002-isda-master-agreement-differ-from-the-1992-version-regarding-close-out-amounts/)
![A fractured, polished disc with a central, sharp conical element symbolizes fragmented digital asset liquidity. This Principal RFQ engine ensures high-fidelity execution, precise price discovery, and atomic settlement within complex market microstructure, optimizing capital efficiency.](https://options.greeks.live/wp-content/uploads/2025/07/principal-rfq-engine-unifying-fragmented-digital-asset-derivatives-liquidity-for-best-execution.jpg)

The 2002 ISDA replaces the 1992's subjective close-out methods with a unified, objectively reasonable standard for greater legal certainty.

- 
### [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.

- 
### [How Does the 2002 ISDA Master Agreement Change Valuation Risk?](https://options.greeks.live/question/how-does-the-2002-isda-master-agreement-change-valuation-risk/)
![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)

The 2002 ISDA Agreement re-architects valuation risk by mandating an objective, evidence-based close-out process.

- 
### [Why Was the “First Method” or One-Way Payment System Removed in the 2002 ISDA Master Agreement?](https://options.greeks.live/question/why-was-the-first-method-or-one-way-payment-system-removed-in-the-2002-isda-master-agreement/)
![A central toroidal structure and intricate core are bisected by two blades: one algorithmic with circuits, the other solid. This symbolizes an institutional digital asset derivatives platform, leveraging RFQ protocols for high-fidelity execution and price discovery. It optimizes market microstructure for capital efficiency, managing multi-leg spreads and latent liquidity within a Principal's operational framework.](https://options.greeks.live/wp-content/uploads/2025/07/digital-asset-derivatives-rfq-execution-hub-integrating-algorithmic-intelligence-for-high-fidelity-price-discovery-and-liquidity-aggregation.jpg)

The First Method was removed to enforce equitable two-way payments, align with regulatory capital rules, and enhance overall market stability.

- 
### [What Are the Key Differences between the 1992 and 2002 Isda Close-Out Protocols?](https://options.greeks.live/question/what-are-the-key-differences-between-the-1992-and-2002-isda-close-out-protocols/)
![A segmented circular structure depicts an institutional digital asset derivatives platform. Distinct dark and light quadrants illustrate liquidity segmentation and dark pool integration. A central element signifies atomic settlement and price discovery within an RFQ protocol, ensuring high-fidelity execution and capital efficiency.](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-derivatives-rfq-liquidity-aggregation-protocols.jpg)

The 2002 ISDA protocol mandates a single, objective "Close-out Amount," replacing the 1992 version's subjective and varied options.

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---

**Original URL:** https://options.greeks.live/question/why-was-the-1992-isdas-market-quotation-method-problematic-in-a-crisis/
