Template:Csa title transfer vs pledge: Difference between revisions

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This feels as good a time as any to raise the great subject of [[title transfer]] and [[pledge]]. In a {{nutshell}}:
This feels as good a time as any to raise the great subject of [[title transfer]] and [[pledge]]. In a {{nutshell}}:
===='''Title Transfer'''====
===='''Title Transfer'''====
The {{1995csa}} – outside the US, by far the most common type of {{csa}} – is a [[title transfer]] document:  
Outright transfer. Examples: The {{1995csa}} – outside the US, by far the most common type of {{csa}} – is a [[title transfer]] document: A vanilla {{gmsla}} or {{gmsla}} operates by title transfer.
*When securities delivered to a party they become the recipient's property absolutely  
*When securities delivered to a party they become the recipient's property absolutely  
*Recipient does not hold them in custody for the transferor;
*Recipient does not hold them in custody for the transferor;
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*Therefore no {{tag|CASS}} or [[custody]] question arises at any point - the transferor gives up all legal claims to the asset.
*Therefore no {{tag|CASS}} or [[custody]] question arises at any point - the transferor gives up all legal claims to the asset.
*Nor does it make any sense to talk about the transferee’s right to [[reuse]] or [[rehypothecate]] the asset. It owns the asset outright: by definition it can do what it wants with it; the transferor can’t stop it.<ref>This doesn't stop [[triparty agent]]s requiring title transfer providers to grant their counterparties a right of reuse.</ref>
*Nor does it make any sense to talk about the transferee’s right to [[reuse]] or [[rehypothecate]] the asset. It owns the asset outright: by definition it can do what it wants with it; the transferor can’t stop it.<ref>This doesn't stop [[triparty agent]]s requiring title transfer providers to grant their counterparties a right of reuse.</ref>
*'''Pledge''': The {{1995csd}} and {{1994csa}}  are “pledge” documents:
===='''Pledge'''====
**The transferor delivers the securities to the receipient to hold for the transferor – the transferor retains title.
Examples: The {{1995csd}} and {{1994csa}}  are “pledge” documents. Collateral deliveries under the US-style {{msla}} and {{mra}} are pledges (with a right of [[reuse]]).
**Recipient holds securities as transferor's custodian subject to a {{tag|security interest}} securing their obligation under the swap.
*The transferor delivers the assets to the transferee to hold in [[custody]] for the transferor – the transferor retains title.
**The custody arrangement only exists while recipient holds the security, not before.
*Recipient holds the assets subject to a {{tag|security interest}} securing its payment obligation under the related transaction.
*The custody arrangement only exists while recipient holds the security, not before.
**Under US iterations of this form (e.g. the {{1994csa}}) the pledgee may nonetheless be entitled to sell the pledged asset absolutely, under a process known as [[rehypothecation]]. Don’t laugh. [[Amwell J|We]] think this converts the pledge into a [[title transfer collateral arrangement]] — at least at the point of [[rehypothecation]].
**Under US iterations of this form (e.g. the {{1994csa}}) the pledgee may nonetheless be entitled to sell the pledged asset absolutely, under a process known as [[rehypothecation]]. Don’t laugh. [[Amwell J|We]] think this converts the pledge into a [[title transfer collateral arrangement]] — at least at the point of [[rehypothecation]].

Revision as of 09:04, 29 April 2019

Title transfer vs. Pledge

This feels as good a time as any to raise the great subject of title transfer and pledge. In a Nutshell™:

Title Transfer

Outright transfer. Examples: The 1995 CSA – outside the US, by far the most common type of 1995 CSA – is a title transfer document: A vanilla 2010 GMSLA or 2010 GMSLA operates by title transfer.

  • When securities delivered to a party they become the recipient's property absolutely
  • Recipient does not hold them in custody for the transferor;
  • Recipient has only an obligation to redeliver an equivalent security.
  • Therefore no CASS or custody question arises at any point - the transferor gives up all legal claims to the asset.
  • Nor does it make any sense to talk about the transferee’s right to reuse or rehypothecate the asset. It owns the asset outright: by definition it can do what it wants with it; the transferor can’t stop it.[1]

Pledge

Examples: The 1995 ISDA CSD (English law) and 1994 NY CSA are “pledge” documents. Collateral deliveries under the US-style Master Securities Lending Agreement and Master Repurchase Agreement are pledges (with a right of reuse).

  • The transferor delivers the assets to the transferee to hold in custody for the transferor – the transferor retains title.
  • Recipient holds the assets subject to a security interest securing its payment obligation under the related transaction.
  • The custody arrangement only exists while recipient holds the security, not before.
  1. ↑ This doesn't stop triparty agents requiring title transfer providers to grant their counterparties a right of reuse.
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