-47-
dealers for the replacement costs of the relevant terminated
transactions. Neither of the ISDA form agreements provided
specifically for the addition of a surcharge, or discount, for
administrative costs adjustments when computing the amount paid
on early termination due to the default of one party.
6. Assignments and Buyouts of Swaps
A party to a swap agreement seldom assigned its interest in
the swap. In the rare case of an assignment, a third party was
substituted for one of the two original counterparties. The
third party usually made or received an upfront payment
approximately equal to the market value of the swap. In these
cases, the market value of the swap generally equaled the
difference in the present value of the anticipated net cashflow
from each of the swap’s legs.
If a swap counterparty wanted to withdraw from a
transaction, it usually terminated the transaction through a
buyout. In a buyout, one counterparty terminated the swap by
paying the other counterparty a lump-sum amount approximately
equal to the swap’s market value. In these cases, the market
value of the swap generally equaled the difference in the present
value of the anticipated net cashflow from each of the swap’s
legs.
Buyouts of swaps were frequent during the relevant years,
and they occurred in the case of both interdealer and end-user
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