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The Indicative Quote is dead (1992), long live the Indicative Quote (2002)

The High Court in the UK[1] recently clarified important parameters of the Market Quotation process under the 1992 ISDA Master Agreement. It is now established that quotations must be obtained on or after the Early Termination Date and that “live” quotes must be obtained. Backdated or indicative quotes are definitely unacceptable.

These questions had remained open for more than 20 years, and market participants enjoyed considerable latitude in adopting their own views on these issues. Indicative quotes were often conveniently used to calculate the Market Quotation. By rejecting indicative quotes, this important judgment reduces the flexibility previously enjoyed with Market Quotation. Under the 2002 ISDA Master Agreement, the “Close-out Amount” method explicitly permits indicative quotes.

The Court might have provided a compelling reason for the remaining market participants still using “Market Quotation” from the 1992 ISDA Master Agreement to move to the “Close-out Amount” from the 2002 ISDA Master Agreement, possibly via the ISDA Close-out Amount Protocol which is still open for adherence. Some important participants adhered as recently as 26 June 2014.

The full article can be found here


[1] Lehman Brother Finance S.A. (In liquidation) v. Sal. Oppenheim Jr. & Cie. KGAA [2014] EWHC 2627 (Comm)

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