Template:Csa Eligible Collateral summ: Difference between revisions

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It looks like you can choose what you like, right, but CFTC rules in practice restrict it to cash in certain currencies. This is broadly analogous to what happens in Europe under [[EMIR]] and the other major regulatory regimes imposing margin requirements. You may wonder why regulatory VM is cash and regulatory IM is not, and {{premium}} subscribers can find out.
{{{{{1}}}|Eligible Collateral}} — with or without the (VM) suffix, and finding it tremendously irritating as he does, JC will largely go without — is what is, or is not, acceptable to post under a CSA. In the olden days, this was all a bit fraught and accounted for much of the practical complication of the CSA, and which (in the JC’s eyes) made it a sort of primordial [[smart contract]], long before there were such things as smart contracts. It looks like you can choose what you like, right, but CFTC rules in practice restrict it to cash in certain currencies. This is broadly analogous to what happens in Europe under [[EMIR]] and the other major regulatory regimes imposing margin requirements.
 
{{{{{1}}}|Eligible Collateral}} — with or without the (VM) suffix, and finding it tremendously irritating as he does, JC will largely go without — is what is, or is not, acceptable to post under a CSA. In the olden days, this was all a bit fraught and accounted for much of the practical complication of the CSA, and which (in the JC’s eyes) made it a sort of primordial [[smart contract]], long before there were such things as smart contracts.


First, a terminology check. Bless them the NY CSA and the English law CSA use different labels for essentially the same things: Eligible Credit support (British) is the same idea as Eligible Collateral (American). This appears to be a matter of pure preference and you would like to think the [[’squad]]s could have duked it out in the mid-Atlantic in 1995 to something but WE ARE WHERE WE ARE.
First, a terminology check. Bless them the NY CSA and the English law CSA use different labels for essentially the same things: Eligible Credit support (British) is the same idea as Eligible Collateral (American). This appears to be a matter of pure preference and you would like to think the [[’squad]]s could have duked it out in the mid-Atlantic in 1995 to something but WE ARE WHERE WE ARE.
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You may wonder why regulatory VM is cash and Regulatory IM is usually securities and why you have to post Reg IM to a third party — if you are asking that, then for a half a pint a week you can [[pjc:{{PAGENAME}}|subscribe and find out]].
You may wonder why regulatory VM is cash and Regulatory IM is usually securities and why you have to post Reg IM to a third party — if you are asking that, then for a half a pint a week you can [[pjc:{{PAGENAME}}|subscribe and find out]].


In nay case, who has to pay whom on any day, and what, is derivative — I know, right — of a load of extraneous factors besides that {{{{{1}}}|Exposure}} as a bare number: the “shape” of the derivatives book, the state of the market, the composition and market valuations of the {{{{{1}}}Credit Support Balance}} already posted. Even a small firm will have multiple brokerage counterparties; a [[swap dealer]] will have hundreds of thousands. There is simply no way of monitoring and accurately performing an arrangement as complicated as a Credit Support Annex manually. Only computers can do it. Hence, it is rather like a [[smart contract]], and not just superficially, but practically: the “contract” as a meaningful thing is the operational reality, not the document. It lives in the configurations the parties’ operations teams punch into their respective collateral management applications.  
In any case, who has to pay whom on any day, and what, is derivative — I know, right — of a load of extraneous factors besides that {{{{{1}}}|Exposure}} as a bare number: the “shape” of the derivatives book, the state of the market, the composition and market valuations of the {{{{{1}}}Credit Support Balance}} already posted. Even a small firm will have multiple brokerage counterparties; a [[swap dealer]] will have hundreds of thousands. There is simply no way of manually monitoring and accurately performing an arrangement as complicated as a Credit Support Annex. Only computers can do it. Hence, it is rather like a [[smart contract]], and not just superficially, but practically: the “contract” as a meaningful thing is the operational reality, not the document. It lives in the configurations the parties’ operations teams punch into their respective collateral management applications.  


If a number is mis-punched, or the application does not or cannot reflect what is stipulated on paper in the Credit Support Annex, ''no one will ever know.'' At least, not until it is too late.  
If a number is mis-punched, or the application does not or cannot reflect what is stipulated on paper in the Credit Support Annex, ''no one will ever know.'' At least, not until it is too late.  
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