Template:CSA Transfer Description

Timing of CSA Transfers under the 1995 CSA

This is how the timing works for 1995 CSA transfers:

• Demand Date: On any date, be it a Local Business Day or not, (call it a “Demand Date”, but note per 2(a) or 2(b) it must be made “on or promptly following a Valuation Date”), a party may demand a Transfer under para 2(a) (for a Delivery Amount) or 2(b) (for a Return Amount).
• Valuation Time - Exposure: The point at which the valuation is made is the Valuation Time. This keys off the Valuation Date (the 1995 CSA allows you to choose either COB on the Valuation Date or the Local Business Day immediately before the Valuation Date), and therefore not necessarily the Demand Date.
• Valuation Time - Eligible Credit Support: Per para 2(a) the Transferor will transfer Eligible Credit Support having a Value equal to the Delivery Amount as of the date of transfer — i.e., the Settlement Day. Under the Calculations provision all calculations of Value happen at the relevant 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 Credit Support (that is have another Demand Date).
• Transfer Date: Under para 3(a) (Transfers) if the demand is received before the Notification Time (by default, 1pm London time on a Local Business Day) on that Demand Date, the transfer will be made not later than close of business on the related Settlement Day. If received after the Notification Time, or at any time on a Demand Date that isn’t a Local Business Day), the transfer must be made by close of business on the Settlement Day relating to the day (note: ordinary day, not Local Business Day) after the Demand Date.
• Settlement Day: The Settlement Day for any day (whether or not it is a Local Business Day) is:
  • Cash: for cash, the next Local Business Day and,
  • Securities: for securities, the 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

• Demand Date not a Local Business Day: What if the Demand Date is not a Local Business Day? E.g., what if it is received after the Notification Time on a Friday, meaning the 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.
  • Cash: For cash, not so clear.
• What happens if the value of the transferred credit support changes in value on the Settlement Date?
• What happens to Exposures if the Settlement Date is a long time after the Demand Date?: Is the demand, if answered with irrevocable instructions to deliver, treated as having been met, or does the 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 Delivery Amount and Return Amount, both of which include the words:

...the Value as of that Valuation Date of the Transferor’s Credit Support Balance (adjusted to include any prior Delivery Amount and to exclude any prior Return Amount, the transfer of which, in either case, has not yet been completed and for which the relevant Settlement Day falls on or after such Valuation Date).