Template:CSA Transfer Description: Difference between revisions

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===Timing of transfers under a {{{{{1}}}}}===
====CSA transfer timings====
This is how the timing works for {{{{{1}}}}} transfers:
This is how the timing works for CSA transfers.


*'''Demand Date''': On any date, be it a {{{{{1}}}prov|Local Business Day}} or not, (call it a “'''Demand Date'''”, but note per {{{{{1}}}prov|2(a)}} or {{{{{1}}}prov|2(b)}} it must be made “on or promptly following a {{{{{1}}}prov|Valuation Date}}”), a party may demand a {{{{{1}}}prov|Transfer}} under para {{{{{1}}}prov|2(a)}} (for a {{{{{1}}}prov|Delivery Amount}}) or {{{{{1}}}prov|2(b)}} (for a {{{{{1}}}prov|Return Amount}}).
Terminology check: to make this easy, we refer to both {{{{{1}}}|Delivery Amount}}s ''and'' {{{{{1}}}|Return Amount}}s as “'''{{{{{1}}}|Transfer Amount}}s'''”. This cuts out a lot of “''Delivery Amount [[and/or]] Return Amount [[as the case may be]]''” nonsense. The date on which someone demands a {{{{{1}}}|Transfer Amount}} we call a “'''{{{{{1}}}|Demand Date}}'''”.  
*'''{{{{{1}}}prov|Valuation Time}} - {{{{{1}}}prov|Exposure}}''': The point at which the valuation is made is the {{{{{1}}}prov|Valuation Time}}. This keys off the {{{{{1}}}prov|Valuation Date}} (the {{{{{1}}}}} allows you to choose either [[COB]] on the {{{{{1}}}prov|Valuation Date}} or the {{{{{1}}}prov|Local Business Day}} immediately ''before'' the {{{{{1}}}prov|Valuation Date}}), and therefore not necessarily the {{{{{1}}}prov|Demand Date}}.
*'''{{{{{1}}}prov|Valuation Time}} - {{{{{1}}}prov|Eligible Credit Support}}''': Per para {{{{{1}}}prov|2(a)}} the Transferor will transfer {{{{{1}}}prov|Eligible Credit Support}} having a {{{{{1}}}prov|Value}} equal to the {{{{{1}}}prov|Delivery Amount}} ''as of the date of transfer'' — i.e., the {{{{{1}}}prov|Settlement Day}}. Under the {{{{{1}}}prov|Calculations}} provision all calculations of {{{{{1}}}prov|Value}} happen at the relevant {{{{{1}}}prov|Valuation Time}}. Fluctuations in value in the credit support actually delivered  after that time won't invalidate the transfer amount, but they may mean a party can immediately call for more {{{{{1}}}prov|Credit Support}} (that is have another {{{{{1}}}prov|Demand Date}}).
*'''{{{{{1}}}prov|Transfer Date}}''': Under para {{{{{1}}}prov|3(a)}} ({{{{{1}}}prov|Transfers}}) if the demand is received ''before'' the {{{{{1}}}prov|Notification Time}} (by default, 1pm London time on a {{{{{1}}}prov|Local Business Day}}) on that {{{{{1}}}prov|Demand Date}}, the transfer will be made not later than close of business on the related {{{{{1}}}prov|Settlement Day}}. If received ''after'' the {{{{{1}}}prov|Notification Time}}, or at any time on a {{{{{1}}}prov|Demand Date}} that isn’t a {{{{{1}}}prov|Local Business Day}}), the transfer must be made by close of business on the {{{{{1}}}prov|Settlement Day}} relating to the day (note: ''ordinary'' day, ''not'' {{{{{1}}}prov|Local Business Day}}) after the {{{{{1}}}prov|Demand Date}}.
*'''{{{{{1}}}prov|Settlement Day}}''': The {{{{{1}}}prov|Settlement Day}} for ''any'' day (whether or not it is a {{{{{1}}}prov|Local Business Day}}) is:
**'''Cash''': for cash, the next {{{{{1}}}prov|Local Business Day}} and,
**'''Securities''': for securities, the {{{{{1}}}prov|Local Business Day}} after the date on which a trade in the relevant security, if effected on the day in question, would have been settled in accordance with customary practice.


===Questions===
To be clear, neither Demand Date nor {{{{{1}}}|Transfer Amount}} are “ISDA canon”.
*'''{{csaprov|Demand Date}} not a {{csaprov|Local Business Day}}''': What if the {{csaprov|Demand Date}} is not a {{csaprov|Local Business Day}}? E.g., what if it is received after the {{csaprov|Notification Time}} on a Friday, meaning the {{csaprov|Settlement Day}} takes place on the date on which a trade, effected on a Saturday, would have been settled in accordance with customary practice?
 
**'''Securities''': For securities this is ok: a trade effected on a non-business day would be deemed to be effected on the next following Local Business Day anyway, so it would pick this up.
Remember the {{{{{1}}}|Valuation Agent}} is simply the person making the demand.
**'''Cash''': For cash, not so clear.
{{L1}}
*'''What happens if the value of the transferred credit support changes in value on the {{csaprov|Settlement Day}}'''?
'''Value {{{{{1}}}|Exposure}} and {{{{{1}}}|Credit Support Balance}}''': Firstly, value what you are going to call: the {{{{{1}}}|Transfer Amount}} under para {{{{{1}}}|2(a)}} or {{{{{1}}}|2(b)}}. This is roughly ''{{{{{1}}}|Credit Support Balance}} - {{{{{1}}}|Exposure}}'' (or ''vice versa'').
*'''What happens to {{csaprov|Exposure}}s if the {{csaprov|Settlement Day}} is a long time after the {{csaprov|Demand Date}}<ref>As it may well be if the collateral are  corporate [[bond]]s held in a [[clearing system]]</ref>?''': Is the demand, if answered with irrevocable instructions to deliver, treated as having  been met, or does the {{csaprov|Exposure}} stay outstanding until the collateral actually comes in? The answer (counterintuive, given that the transferee remains subject to the credit exposure during this time) is YES, thanks to the definitions of {{csaprov|Delivery Amount}} and {{csaprov|Return Amount}}, both of which include the words:
{{L3}}
:''...the Value as of that {{csaprov|Valuation Date}} of the {{csaprov|Transferor}}’s {{csaprov|Credit Support Balance}} '''''(adjusted to include any prior {{csaprov|Delivery Amount}} and to exclude any prior {{csaprov|Return Amount}}, the transfer of which, in either case, has not yet been completed and for which the relevant {{csaprov|Settlement Day}} falls on or after such {{csaprov|Valuation Date}})'''''.''
Under {{{{{1}}}|2(a)}}, the {{{{{1}}}|Transferor}} will transfer {{{{{1}}}|Eligible Credit Support}} having a {{{{{1}}}|Value}} ''as of the date of transfer'' of the {{{{{1}}}|Transfer Amount}}. <li>
 
Per the {{{{{1}}}|Calculations}} provision, all calculations happen at the {{{{{1}}}|Valuation Time}}. Fluctuations in value after that time won’t invalidate the {{{{{1}}}|Transfer Amount}}, but they may mean a party can immediately call for more {{{{{1}}}|Credit Support}} (that is, have ''another'' {{{{{1}}}|Demand Date}}). <li>
 
The {{{{{1}}}|Valuation Time}} keys off the {{{{{1}}}|Valuation Date}}.<ref>Under the {{csa}} you may specify either [[close of business]] on the {{csaprov|Valuation Date}} or the {{csaprov|Local Business Day}} immediately ''before'' it. Under the {{vmcsa}} you have flexibility to determine the {{vmcsaprov|Valuation Time}} as at the point you close your book each day.</ref></ol><li>
 
'''{{{{{1}}}|Demand Date}}''': On or promptly following any {{{{{1}}}|Valuation Date}} (it need not be a {{{{{1}}}|Local Business Day}}) on which the {{{{{1}}}|Exposure}} has moved in its favour, one party may demand a {{{{{1}}}|Delivery Amount}} (para 2(a)) or a {{{{{1}}}|Return Amount}} (para 2(b)). <li>
 
'''{{{{{1}}}|Transfer Date}}''': Under para {{{{{1}}}|3(a)}} (''{{{{{1}}}|Transfers}}'') if the demand is received ''before'' the {{{{{1}}}|Notification Time}} on a {{{{{1}}}|Demand Date}} that is a {{{{{1}}}|Local Business Day}} the transfer must be made by [[close of business]] on the related [[Regular Settlement Day - VM CSA Provision|''Regular'' Settlement Day]].<ref>The “{{csaprov|Settlement Day}}” under the {{csa}} is slightly different.</ref> If received ''after'' the {{{{{1}}}|Notification Time}} or on a non-{{{{{1}}}|Local Business Day}}, the transfer must be made by close of business on the {{vmcsaprov|Regular Settlement Day}} relating to the day<ref>Note: ''ordinary'' day, ''not'' Local Business Day</ref> ''after'' the Demand Date. <li>
 
'''{{csaprov|Settlement Day}}''': Here is where things differ materially between the {{csa}} and the {{vmcsa}}.
{{L3}}
'''{{csa}}''': The {{csaprov|Settlement Day}} for ''any'' day (whether or not it is a {{{{{1}}}|Local Business Day}}) is:
{{L4}}
'''Cash''': for cash, the next {{{{{1}}}|Local Business Day}} and, <li>
'''Securities''': for securities, the {{{{{1}}}|Local Business Day}} after the date on which a trade in the relevant security, if effected on the day in question, would have been settled in accordance with customary practice. </ol><li>
'''{{vmcsa}}''': In the new world we have the new concept of the [[Regular Settlement Day - VM CSA Provision|''Regular'' Settlement Day]], and this is the same {{vmcsaprov|Local Business Day}} as the Demand Date. The run-off text at the end of Paragraph {{vmcsaprov|3(a)}} gives you a little more flex: if the demand came after the {{vmcsaprov|Notification Time}}, then you must make the transfer by close on the {{vmcsaprov|Regular Settlement Day}} for the next day. Just how the business days interact under the ISDA and CSA is about as complicated as string theory, by the way. </ol></ol>

Latest revision as of 16:14, 8 July 2024

CSA transfer timings

This is how the timing works for CSA transfers.

Terminology check: to make this easy, we refer to both {{{{{1}}}|Delivery Amount}}s and {{{{{1}}}|Return Amount}}s as “{{{{{1}}}|Transfer Amount}}s”. This cuts out a lot of “Delivery Amount and/or Return Amount as the case may be” nonsense. The date on which someone demands a {{{{{1}}}|Transfer Amount}} we call a “{{{{{1}}}|Demand Date}}”.

To be clear, neither Demand Date nor {{{{{1}}}|Transfer Amount}} are “ISDA canon”.

Remember the {{{{{1}}}|Valuation Agent}} is simply the person making the demand.

  1. Value {{{{{1}}}|Exposure}} and {{{{{1}}}|Credit Support Balance}}: Firstly, value what you are going to call: the {{{{{1}}}|Transfer Amount}} under para {{{{{1}}}|2(a)}} or {{{{{1}}}|2(b)}}. This is roughly {{{{{1}}}|Credit Support Balance}} - {{{{{1}}}|Exposure}} (or vice versa).
    1. Under {{{{{1}}}|2(a)}}, the {{{{{1}}}|Transferor}} will transfer {{{{{1}}}|Eligible Credit Support}} having a {{{{{1}}}|Value}} as of the date of transfer of the {{{{{1}}}|Transfer Amount}}.
    2. Per the {{{{{1}}}|Calculations}} provision, all calculations happen at the {{{{{1}}}|Valuation Time}}. Fluctuations in value after that time won’t invalidate the {{{{{1}}}|Transfer Amount}}, but they may mean a party can immediately call for more {{{{{1}}}|Credit Support}} (that is, have another {{{{{1}}}|Demand Date}}).
    3. The {{{{{1}}}|Valuation Time}} keys off the {{{{{1}}}|Valuation Date}}.[1]
  2. {{{{{1}}}|Demand Date}}: On or promptly following any {{{{{1}}}|Valuation Date}} (it need not be a {{{{{1}}}|Local Business Day}}) on which the {{{{{1}}}|Exposure}} has moved in its favour, one party may demand a {{{{{1}}}|Delivery Amount}} (para 2(a)) or a {{{{{1}}}|Return Amount}} (para 2(b)).
  3. {{{{{1}}}|Transfer Date}}: Under para {{{{{1}}}|3(a)}} ({{{{{1}}}|Transfers}}) if the demand is received before the {{{{{1}}}|Notification Time}} on a {{{{{1}}}|Demand Date}} that is a {{{{{1}}}|Local Business Day}} the transfer must be made by close of business on the related Regular Settlement Day.[2] If received after the {{{{{1}}}|Notification Time}} or on a non-{{{{{1}}}|Local Business Day}}, the transfer must be made by close of business on the Regular Settlement Day relating to the day[3] after the Demand Date.
  4. Settlement Day: Here is where things differ materially between the 1995 CSA and the 2016 VM CSA.
    1. 1995 CSA: The Settlement Day for any day (whether or not it is a {{{{{1}}}|Local Business Day}}) is:
      1. Cash: for cash, the next {{{{{1}}}|Local Business Day}} and,
      2. Securities: for securities, the {{{{{1}}}|Local Business Day}} after the date on which a trade in the relevant security, if effected on the day in question, would have been settled in accordance with customary practice.
    2. 2016 VM CSA: In the new world we have the new concept of the Regular Settlement Day, and this is the same Local Business Day as the Demand Date. The run-off text at the end of Paragraph 3(a) gives you a little more flex: if the demand came after the Notification Time, then you must make the transfer by close on the Regular Settlement Day for the next day. Just how the business days interact under the ISDA and CSA is about as complicated as string theory, by the way.
  1. ↑ Under the 1995 CSA you may specify either close of business on the Valuation Date or the Local Business Day immediately before it. Under the 2016 VM CSA you have flexibility to determine the Valuation Time as at the point you close your book each day.
  2. ↑ The “Settlement Day” under the 1995 CSA is slightly different.
  3. ↑ Note: ordinary day, not Local Business Day
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