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The “Defaulting Party” in relation to a GMRA is the party in relation to which an Event of Default has arisen. The ‘other party’ (in other words, the party in relation to which NO Event of Default has arisen) is the “non-Defaulting Party”.
The significance of being the non-Defaulting Party is set out below:
- “Default Notices” (which specify Early Termination Dates and therefore are used to bring transactions to an end) can only be served by non-Defaulting Parties.
- The “Applicable Rate” is chosen by the non-Defaulting Party. In simple terms, the “Applicable Rate” is just an interest rate which is applied to amounts which are due between the parties to a Global Master Repurchase Agreement, but which remain unpaid.
- The “Spot Rate” in a close-out scenario is selected by the non-Defaulting Party. The “Spot Rate” is the rate used for all conversions.
- The “Default Market Value” of Equivalent Securities and Equivalent Margin Securities on a close-out is calculated by the non-Defaulting Party. As part of this process, the non-Defaulting Party also calculates:
- calculates the amount of Cash Margin posted on a close-out
- calculates the “Repurchase Price”
- identifies “Appropriate Market” (the non-Defaulting Party may calculate the “Default Market Value” of securities based on bid and offer quotations received from dealers in the “Appropriate Market”).
- Rights of set-off can only be exercised by the non-Defaulting Party.