View source for Template:Csa title transfer vs pledge

====The twain between NY law and English law CSAs: pledge v title transfer====
This feels as good a time as any to raise the great subject of [[title transfer]] and [[pledge]]. 

Under a {{nycsa}} one transfers {{{{{1}}}|Credit Support}} by means of ''[[pledge]]''. 

Under a {{ukcsa}} one transfers {{{{{1}}}|Credit Support}} by ''[[title transfer]]''. 

What is the difference? 
=====Title transfer=====
Under a “{{ttca}}” one party transfers collateral to the other ''outright and absolutely'': it ''gives'' it, free of all reversionary interests, to the {{{{{1}}}|Transferee}}. 

Securities delivered to {{{{{1}}}|Transferee}} become the {{{{{1}}}|Transferee}}’s property absolutely. There is no custody involved: the {{{{{1}}}|Transferee}} owns them outright, and not to {{{{{1}}}|Transferor}}’s order. The {{{{{1}}}|Transferee}} has only an obligation to redeliver an “[[equivalent]]” security — ie one that is fungible with the {{{{{1}}}|Credit Support}} originally posted. 

There are no custody/client asset regulatory issues, and nor does it make sense to talk about the {{{{{1}}}|Transferee}}’s right to “[[reuse]]” or “[[rehypothecate]]” the asset. It ''owns'' the asset outright: by definition, it can do what it wants with it.

=====Pledge=====
The NY law CSAs and English law CSDs are “{{sfca}}s” in that there is a {{{{{1}}}|Pledgor}} who creates a [[security interest]] in favour of the {{{{{1}}}|Secured Party}}, ''but retains beneficial ownership of the assets''. 

The {{{{{1}}}|Pledgor}} delivers the assets to the {{{{{1}}}|Secured Party}} to hold in [[custody]], subject to the [[security interest]], for the {{{{{1}}}|Pledgor}}. {{{{{1}}}|Secured Party}} holds the assets subject to a [[security interest]] securing its payment obligation under the related transaction.

There is a custody arrangement but only while {{{{{1}}}|Secured Party}} holds the security: Under the NY law CSAs, the {{{{{1}}}|Secured Party}} (by default) is entitled to sell the pledged asset absolutely, under a process known as “[[rehypothecation]]”. This, we believe, converts the {{sfca}} into a {{ttca}} — at least from the point of [[rehypothecation]]. If so, it makes you wonder why, you know, all the fuss with security interests.

====“Transaction” or “Credit Support Document”?====
English law Credit Support Annexes are {{isdaprov|Transaction}}s under the Master Agreement. Therefore they are not {{isdaprov|Credit Support Document}}s.

New York law Credit Support Annexes are ''not'' {{isdaprov|Transaction}}s. Explicitly, they '''are''' {{isdaprov|Credit Support Document}}s'', though you should not (according to the ISDA User’s Guide) describe the parties to one as “{{nycsaprov|Credit Support Provider}}s”.

English law Credit Support ''Deeds'' (including the {{imcsd}}) — rare birds in the [[Forest of Bretton]] —  are ''not'' {{isdaprov|Transaction}}s and, explicitly, ''are'' {{isdaprov|Credit Support Document}}s''.

This means that a failure to perform under an English law CSA {{isdaprov|Transaction}} is a {{isdaprov|Failure to Pay or Deliver}} under Section {{isdaprov|5(a)(i)}}. by contrast, a failure to perform under a New York law CSA or an English law CS''D'' is a {{isdaprov|Credit Support Default}} under Section {{isdaprov|5(a)(iii)}}.

Does this mean anything substantive? Or is the difference only formal?

====Enforcement====
Because ownership transfers absolutely, a {{{{{1}}}|Transferee}} under an English law CSA doesn’t have to do anything to enforce its collateral. It already owns it outright. Indeed, to the contrary, should the {{{{{1}}}|Exposure}} that the collateral supports disappear, the {{{{{1}}}|Transferor}} will be the creditor of the {{{{{1}}}|Transferee}}. It is as if it were a {{isdaprov|Transaction}} under the ISDA where the [[mark-to-market]] exposure had flipped around. 

As New York law CSAs are ''not'' {{isdaprov|Transaction}}s, they are old-fashioned security arrangements. Therefore they '''are'' Credit Support Documents in the labyrinthine logic of {{icds}} and must be enforced.