Template:Ny csa 6(c) summ

Rehypothecation in the {{{{{1}}}}}

Paragraph {{{{{1}}}prov|6(c)}} is the classic part of your security interest {{{{{1}}}}} that converts it into a title transfer CSA, meaning — cough, as with much New York law frippery — that you might as well not bother with calling this a pledge or security interest in the first place.

So I give my asset to you, right, carefully only pledging it as security for my indebtedness to you, and protect myself from your credit risk because I retain beneficial ownership of the asset. It is mine, not yours, and should you explode into a thousand points of light, then, once I have settled my trading account with your administrator, I can have it back.

Right?

Except that, the moment you get it, unless we have agreed otherwise — and, by default the {{{{{1}}}}} assumes we have not — you may unconditionally sell my asset, absolutely, to anyone you want to, at any time, or actually, damn the torpedoes, just take it onto your own balance sheet and hold it in your own name. Whereupon, my claim against you is for the return of my asset that you no longer have, or have put into your general bankruptcy estate, so you would have to go and buy it in the market, but since you have blown up, you can’t realistically do that, so I am, after all, your unsecured creditor and all this talk of security interests is a nonce.

Note that the {{{{{1}}}prov|Secured Party}}’s right to flog off the {{{{{1}}}prov|Pledgor}}’s asset evaporates should it commit an Event of Default, Early Termination Event or one of the {{{{{1}}}}}’s {{{{{1}}}prov|Specified Condition}}s but — courtesy of Paragraph {{{{{1}}}prov|7(ii)}}, the {{{{{1}}}prov|Secured Party}}’s right to call a default as a result of the {{{{{1}}}prov|Pledgor}} continuing to flog off its assets — there doesn’t seem to be an obligation to buy back assets once they’re sold, by the way — only kicks in after 5 {{{{{1}}}prov|Local Business Days}}, by which stage even the guys disconsolately wandering around outside the office clutching Iron Mountain boxes will have pushed off.

Oh, what sad times we live in.

Note the odd coda: references to {{{{{1}}}prov|Posted Collateral}} etc — where, for the purposes of calculating your credit support posting obligations, you are deemed to still hold it, even though in fact you don’t — is in part an attempt to state the bleeding obvious: just because you’ve hocked the assets off to someone else doesn’t mean you don’t still have to account to your counterparty for their value in the long run — and, we think, a rather feeble attempt to avoid having to create an “Equivalent Credit Support” concept. Since you've sent the particular asset your counterparty gave you into the great wide open, the thing you'll be giving back will be economically, but not ontologically, so in theory you don’t hasve to give back the exact same one, even if it does have to be identical with it. Perhaps a concern in 1994, though since ISDA’s crack drafting squad™ went full metal jacket on that enterprise in 1995 when crafting the 1995 CSA, it is not like we don’t have suitable, road-tested — if a little anal — language to capture the idea of equivalence.

But anyway.