Expenses - NY VM CSA Provision

2016 ISDA Credit Support Annex (VM) (New York law) A Jolly Contrarian owner’s manual™ Go premium Overview — Summary — Premium — See also — Wikitext Crosscheck: →NY OG →Eng OG →NY VM →Eng VM →Eng IM Expenses in a Nutshell™ The JC’s Nutshell™ summary of this term has moved uptown to the subscription-only ninja tier. For the cost of ½ a weekly 🍺 you can get it here. Sign up at Substack. You can even ask questions! Ask about it here. Original text Paragraph 10 Expenses 10(a) General. Except as otherwise provided in Paragraphs 10(b) and 10(c), each party will pay its own costs and expenses in connection with performing its obligations under this Annex and neither party will be liable for any costs and expenses incurred by the other party in connection herewith. 10(b) Posted Credit Support (VM). The Pledgor will promptly pay when due all taxes, assessments or charges of any nature that are imposed with respect to Posted Credit Support (VM) held by the Secured Party upon becoming aware of the same, regardless of whether any portion of that Posted Credit Support (VM) is subsequently disposed of under Paragraph 6(c), except for those taxes, assessments and charges that result from the exercise of the Secured Party’s rights under Paragraph 6(c). 10(c) Liquidation/Application of Posted Credit Support (VM). All reasonable costs and expenses incurred by or on behalf of the Secured Party or the Pledgor in connection with the liquidation and/or application of any Posted Credit Support (VM) under Paragraph 8 will be payable, on demand and pursuant to the Expenses Section of this Agreement, by the Defaulting Party or, if there is no Defaulting Party, equally by the parties. The varieties of ISDA CSA Subject 1994 NY 1995 Eng 2016 VM NY 2016 VM Eng 2018 IM Eng Preamble Pre Pre Pre Pre Pre Interpretation 1 1 1 1 1 Security Interest 2 - 2 - 2 Credit Support Obligations 3 2 3 2 3 Transfers, Calculations and Exchanges - 3 - 3 - Conditions Precedent, Transfer Timing, Calculations and Substitutions 4 - 4 - 4 Dispute Resolution 5 4 5 4 5 Holding and Using Posted Collateral 6 - 6 - 6 Transfer of Title, No Security Interest - 5 - 5 - Events of Default 7 6 7 6 7 Rights and Remedies 8 - 8 - 8 Representations 9 7 9 7 9 Expenses 10 8 10 8 10 Miscellaneous 11 9 11 9 11 Definitions 12 10 12 10 12 Elections and Variables 13 11 13 11 13 Resources and Navigation Index: Click ᐅ to expand: CSA

Comparisons

title transfer CSAs

Paragraph 8 of the 1995 CSA is identical to the paragraoh 8 in the 2016 VM CSA.

security interest CSAs

Paragraph 10(a) of the 1994 NY CSA (but for the (VM)s) identical to Paragraph 10(a) of the 2016 NY Law VM CSA.

security interest CSAs vs. title transfer CSAs

The bit about everyone being liable for their own costs is common to all CSAs. the difference is that taxes lie where they fall in the title transfer CSAs, but are the responsibility of the Pledgor in the security interest CSAs. The security interest CSAs also carry on in 10(b) and 10(c) to rabbit on a bit about taxes and enforcement costs on Posted Collateral.

IM CSD

The 2018 English law IM CSD is an odd hybrid: all parties are liable for their own taxes, there is all the additional bit about Posted Credit Support, but the Chargor is liable for the costs and taxes of returning Credit Support from the Segregated Account back to the Chargor (when no longer required as IM).

Basics

The starting point here, being a function of the common law of contract — not to mention common sense — is that every merchant is liable for its own costs and expenses of performing a contract, so if there you incur costs in running a collateral operation, as a general matter, they are for your own account.

Where this might change is as a result of a pledge. Specifically in the context of tax.

Bear in mind the pledge is designed purely as the Secured Party’s comfort it will be made whole if the Pledgor defaults, by the Pledgor handing over some assets as collateral, on the premise that the Pledgor will get them back. This is different from the title transfer CSA, where you get the collateral to keep and do with as you wish, and collateralisation works by way of offset.

Now, the idea is not to stick a Secured Party with any additional expenses as a result: if Pledgor delivers collateral to Secured Party to hold hostage, then if the Secured Party suffers any costs, be they by way of tax — the classic is a stamp duty or similar transfer tax — or perfection and registration of security, and then enforcement and realisation should the Pledgor default, these should be for the Pledgor’s account, as the Secured Party gets no benefit from incurring that cost. All the more so any costs and taxes the Secured Party should incur when transferring the assets back to the Pledgor at the end of the Transaction.

These considerations do not — quite so straightforwardly, at any rate — pertain to title transfer arrangements. Once you have the asset, it is yours. And you can control, somewhat, for transfer taxes by adjusting your Eligible Credit Support criteria.

This is not an entirely ironclad justification, by the way — especially when you take into account the effects of rehypothecation.

security interest CSAs

How to deal with stamp duties is the subject of Paragraphs 10(b) and 10(c), of which there is no equivalent in the English law document.

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