Value - CSA Provision

CSA Anatomy™ →Go uptown “Value” means, for any Valuation Date or other date for which Value is calculated, and subject to Paragraph 4 in the case of a dispute, with respect to: (i) Eligible Credit Support comprised in a Credit Support Balance that is: (A) an amount of cash, the Base Currency Equivalent of such amount multiplied by the applicable Valuation Percentage, if any; and (B) a security, the Base Currency Equivalent of the bid price obtained by the Valuation Agent multiplied by the applicable Valuation Percentage, if any; and (ii) items that are comprised in a Credit Support Balance and are not Eligible Credit Support, zero. (View Template) “Value” means, for any Valuation Date or other date for which Value is calculated, and subject to Paragraph 4 in the case of a dispute, with respect to: (i) Eligible Credit Support (VM) comprised in a Credit Support Balance (VM) or Equivalent Credit Support (VM) that is: (A) an amount of cash, the Base Currency Equivalent of such amount multiplied by (VP – HFX), provided that, in the case of a determination of a Value for the purposes of Paragraph 6, the Value will be the Base Currency Equivalent of such amount; and (B) a security, the Base Currency Equivalent of the bid price obtained by the Valuation Agent multiplied by (VP – HFX), where: VP equals the applicable Valuation Percentage; and HFX equals the applicable FX Haircut Percentage, provided that, in the case of a determination of a Value for the purposes of Paragraph 6, the Value will be the Base Currency Equivalent of the bid price obtained by the Valuation Agent; and (ii) items that are comprised in a Credit Support Balance (VM) and are not Eligible Credit Support (VM) (including any item or any portion of any item that fails to satisfy any (A) Credit Support Eligibility Conditions (VM) applicable to it or (B) applicable Legal Eligibility Requirements), zero provided that any items that are comprised in a Credit Support Balance (VM) that are not Eligible Credit Support (VM) will, in the case of a determination of a Value for the purposes of Paragraph 6, have a Value determined in accordance with (i) above as if they were Eligible Credit Support (VM). (View Template) Resources Full wikitext | Nutshell wikitext English Law | 1 Interpretation | 2 Credit Support Obligations | 3 Transfers, Calculations and Exchanges | 4 Dispute Resolution | 5 Transfer of Title, No Security Interest, Distributions and Interest Amount | 6 Default | 7 Representation | 8 Expenses | 9 Miscellaneous | 10 Definitions | 11 Elections and Variables · Base Currency and Eligible Currency · Credit Support Obligations · Valuation and Timing · Exchange Date · Dispute Resolution · Distributions and Interest Amount · Addresses for Transfers · Credit Support Offsets · Other CSA 2018 ISDA Credit Support Deed for Initial Margin Index: Click ᐅ to expand: CSA Tell me more Sign up for our newsletter — or just get in touch: for ½ a weekly 🍺 you get to consult JC. Ask about it here.

2016 changes

Basically to add in the FX Haircut Percentage into the multiplier, that being (in some jurisdictions) a fairly hefty surcharge for those people who like to collateralize in a currency other than the one in which their derivatives are denominated.

Non eligible Credit Support as forming part of the Credit Support Balance

See also Value (dispute resolution) as set out in Paragraph 11(e)(ii). Note in particular that Credit Support which has been delivered but has subsequently fallen out of eligibililty criteria (and any non-eligible Distributions and Interest Amounts received in respect of Eligible Credit Support) are part of the Credit Support Balance, but are valued at zero.

Ineligible Credit Support

Credit Support which has been delivered but has subsequently fallen out of eligibililty criteria (and any non-eligible Distributions and Interest Amounts received in respect of Eligible Credit Support) remains part of the Credit Support Balance, but is valued at zero.

While the world is moving towards a predilection for cash only, single currency CSAs, so this objection might soon seem archaic, in the mean time note a whopping great hole in the CSA documentation here. What happens to stuff which, when you posted, was Eligible Credit Support, but after posting it ceases to be eligible? How do you get it back?

On the face of it, it’s straightforward:

the Value of “any items that are comprised in a Credit Support Balance and are not Eligible Credit Support is zero.”

—Definition of Value, CSA

So it doesn’t count to the Credit Support Balance. But just because something has no “Value” under your CSA doesn’t mean it has no value at all. There’s no accounting for taste, after all. If the Transferee doesn’t want it, it should give it back, right?

Sans doubte, that’s what the boxwallahs at ISDA had in mind. But — whoops — that’s not quite what they managed: The mechanism for getting your posted collateral back is to wait for the Exposure to reduce, and then call back equivalent items to those you posted. But even the day your Exposure goes to (or through) zero, you can call only back Equivalent Credit Support with a Value equal to your existing Credit Support Balance - in the eyes of the CSA, that is all you have posted.

But the CSA has no eyes for your previously posted, now ineligible, collateral. It is blind to it: your ineligible collateral has a “Value” of zero, the Transferee discharge its Return Amount obligation without giving any of the ineligible stuff back. It gets trapped in a kind of parallel universe, like the Nosferatu the unposted, it neither lives nor dies, but ceaselessly roams the afterlife, seeking true love and haunting the dreams of every negotiator.

Most houses have long since crafted language to deal with this contingency. I say “crafted” but “congealed” is a better description: the standard formulations are a tedious clutter of masticated paragraphs that interrupt the elegant flow of your elections, impeding the flow like a tacky mess that accumulates around the nozzle of a ketchup dispenser. All you really need to say is this:

If at any time any item comprising a Credit Support Balance ceases to be Eligible Credit Support the Transferee must transfer to the equivalent items of the same type, nominal value, description and amount to the Transferor on the Settlement Day following the demand by the Transferor.

You don’t need to make this transfer conditional on the Transferor ponying up replacement Eligible Credit Support - Q.E.D. this stuff has no Value, so his Credit Support Balance will be suddenly in debit, and the Transferee can call additional Delivery Amount independently of the return of this item.

"Base Currency Equivalent of bid price"

It is not unknown to amend limb (ii) to include "the Base Currency Equivalent of the bid price obtained by the Valuation Agent multiplied by the nominal amount of such security".

This is presumably to cater for the argument that a "bid price" is a percentage figure. But "base currency equivalent" already impliedly converts any percentage value into cash amount. And if the Eligible Credit Support includes collateral other that debt instruments (e.g., equities), reference to a nominal amount muiltiplier is potentially confusing.