Termination Event

AAA

DEFINITION of 'Termination Event'

An occurrence that will cause all or part of a swap agreement to be ended early. Possible termination events include legal or regulatory changes that prevent one or both parties from fulfilling the contract terms ("illegality"), the placement of a withholding tax on the transaction ("tax event" or "tax event upon merger"), or a reduction in one counterparty's creditworthiness ("credit event").


A termination even can also relate to business agreements between multiple parties. If one of the members takes a course of action which is deemed inappropriate, that could serve as a termination even for the partnership.

INVESTOPEDIA EXPLAINS 'Termination Event'

As part of the swap arrangement, the counterparties agree to notify each other if a termination event takes place. If a swap is terminated early, both parties will cease to make the agreed-upon payments, and the counterparty who is responsible for the termination event may be required to pay damages to the other counterparty. Default events such as failure to pay or declaration of bankruptcy can also cause a swap contract to end early.

RELATED TERMS
  1. Termination Clause

    A section of a swap contract that describes what will happen ...
  2. Reverse Swap

    An exchange of cash flow streams that undoes the effects of an ...
  3. Debt For Bond Swap

    A debt swap involving the exchange of a new bond issue for similar ...
  4. Forward Swap

    A swap agreement created through the synthesis of two swaps differing ...
  5. Currency Swap

    A swap that involves the exchange of principal and interest in ...
  6. Credit Default Swap - CDS

    A swap designed to transfer the credit exposure of fixed income ...
Related Articles
  1. Insurance

    Credit Default Swaps: What Happens In A Credit Event?

    The credit crisis of 2008 prompted important changes to the settlement of credit default swaps.
  2. Options & Futures

    An Introduction To Structured Products

    Learn a simple way to bring the benefits of derivatives into your portfolio.
  3. Investing Basics

    The Barnyard Basics Of Derivatives

    This tale of a fictional chicken farm is a great way to learn how derivatives work in the market.
  4. Options & Futures

    Are Derivatives Safe For Retail Investors?

    These vehicles have gotten a bad rap in the press. Find out whether they deserve it.
  5. Options & Futures

    An Introduction To Swaps

    Learn how these derivatives work and how companies can benefit from them.
  6. Bonds & Fixed Income

    The Advantages Of Bond Swapping

    This technique can add diversity to your portfolio and lower your taxes. Find out how.
  7. Active Trading

    How Companies Use Derivatives To Hedge Risk

    Derivatives can reduce the risks associated with changes in foreign exchange rates, interest rates and commodity prices.
  8. Investing

    How Swaptions Can Reduce Risk in Portfolios

    How can investing in Swaptions reduce risk in portfolios.
  9. Investing News

    Sun Pharma And Ranbaxy: An Ideal Pharma Marriage?

    The Sun Pharma merger with Ranbaxy will blend the complementary market strengths and areas of expertise of each company and create a powerful pharma force.
  10. Investing

    Facebook's Most Important Acquisitions

    Strategic acquisitions have been key to Facebook's growth and success, and the company has acquired more than 50 companies or properties since it's formation in 2004.

You May Also Like

Hot Definitions
  1. Fixed Cost

    A cost that does not change with an increase or decrease in the amount of goods or services produced. Fixed costs are expenses ...
  2. Subsidy

    A benefit given by the government to groups or individuals usually in the form of a cash payment or tax reduction. The subsidy ...
  3. Sunk Cost

    A cost that has already been incurred and thus cannot be recovered. A sunk cost differs from other, future costs that a business ...
  4. Technical Skills

    1. The knowledge and abilities needed to accomplish mathematical, engineering, scientific or computer-related duties, as ...
  5. Prepaid Expense

    A type of asset that arises on a balance sheet as a result of business making payments for goods and services to be received ...
  6. Gordon Growth Model

    A model for determining the intrinsic value of a stock, based on a future series of dividends that grow at a constant rate. ...
Trading Center