Recent events in the financial markets have highlighted the importance of parties to a 1992 Master Agreement1 understanding the termination mechanics following an event of default. It is now more vital than ever for the Non-defaulting Party to have a clear and effective close-out mechanism to replace the terminated derivative transaction as quickly as possible.2 In contrast to a Termination Event, which may be triggered without the fault of either party and is designed to close out a Transaction following an event that substantially alters the Transaction's economic profile, an Event of Default arises where the fault of a party triggers termination. The purpose of this article is to briefly examine the consequences of an Event of Default and the subsequent process by which the Non-defaulting Party can terminate an Agreement.

Events of Default

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