Template:Exposure under csa: Difference between revisions
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===Relevance of Section {{isdaprov|6}} to the peacetime operation of the {{csa}}=== | ===Relevance of Section {{isdaprov|6}} to the peacetime operation of the {{csa}}=== | ||
The calculation of Exposure under the {{csa}} is modelled on the Section {{isdaprov|6(e)(ii)}} termination methodology following a {{isdaprov|Termination Event}} where there is one {{isdaprov|Affected Party}}, which in turn tracks the Section {{isdaprov|6(e)(i)}} methodology following an {{isdaprov|Event of Default}}, only taking [[mid-market valuation]]s and not those on the {{isdaprov|Non-Defaulting Party}}’s side. | The calculation of {{csaprov|Exposure}} under the {{csa}} is modelled on the Section {{isdaprov|6(e)(ii)}} termination methodology following a {{isdaprov|Termination Event}} where there is one {{isdaprov|Affected Party}}, which in turn tracks the Section {{isdaprov|6(e)(i)}} methodology following an {{isdaprov|Event of Default}}, only taking [[mid-market valuation]]s and not those on the {{isdaprov|Non-Defaulting Party}}’s side. | ||
This means you calculate the Exposure as: | This means you calculate the {{csaprov|Exposure}} as: | ||
::(a) the {{isdaprov|Close-out Amount}}s for each Terminated Transaction '''plus''' <br> | ::(a) the {{isdaprov|Close-out Amount}}s for each {{isdaprov|Terminated Transaction}} '''plus''' <br> | ||
::(b) {{isdaprov|Unpaid Amounts}} due to the {{isdaprov|Non-defaulting Party}}; '''minus''' <br> | ::(b) {{isdaprov|Unpaid Amounts}} due to the {{isdaprov|Non-defaulting Party}}; '''minus''' <br> | ||
::(c) {{isdaprov|Unpaid Amounts}} due to the Defaulting Party.<br> | ::(c) {{isdaprov|Unpaid Amounts}} due to the {{isdaprov|Defaulting Party}}.<br> | ||
This is interesting because, as of its {{isdadefsprov|Termination Date|2006}} the {{isdaprov|Transaction}} may be no more, but until those final exchanges are settled the obligations they represent — “{{isdaprov|Unpaid Amount}}s” in the argot of Section {{isdaprov|6(e)}} — still exist and are included in the calculation of the {{csaprov|Exposure}}. | This is interesting because, as of its {{isdadefsprov|Termination Date|2006}} the {{isdaprov|Transaction}} may be no more, but until those final exchanges are settled the obligations they represent — “{{isdaprov|Unpaid Amount}}s” in the argot of Section {{isdaprov|6(e)}} — still exist and are included in the calculation of the {{csaprov|Exposure}}. | ||
Now, on the day you are meant to | Now, on the day you are meant to make that final settlement, which when (ahem — ''if'') settled, would reduce your {{csaprov|Exposure}}, you will call for your {{csaprov|Delivery Amount}} or {{csaprov|Return Amount}} assuming it has not (yet) been paid. By the time the Credit Support adjustment has been settled, that final settlement will have happened, meaning the person who paid the adjustment will be out of pocket, and will need to call it back (using the same process). | ||
Fun times in the world of [[collateral]] [[operations]]. | Fun times in the world of [[collateral]] [[operations]]. | ||
Revision as of 15:25, 6 November 2018
Relevance of Section 6 to the peacetime operation of the 1995 CSA
The calculation of Exposure under the 1995 CSA is modelled on the Section 6(e)(ii) termination methodology following a Termination Event where there is one Affected Party, which in turn tracks the Section 6(e)(i) methodology following an Event of Default, only taking mid-market valuations and not those on the Non-Defaulting Party’s side.
This means you calculate the Exposure as:
- (a) the Close-out Amounts for each Terminated Transaction plus
- (b) Unpaid Amounts due to the Non-defaulting Party; minus
- (c) Unpaid Amounts due to the Defaulting Party.
- (a) the Close-out Amounts for each Terminated Transaction plus
This is interesting because, as of its Termination Date the Transaction may be no more, but until those final exchanges are settled the obligations they represent — “Unpaid Amounts” in the argot of Section 6(e) — still exist and are included in the calculation of the Exposure.
Now, on the day you are meant to make that final settlement, which when (ahem — if) settled, would reduce your Exposure, you will call for your Delivery Amount or Return Amount assuming it has not (yet) been paid. By the time the Credit Support adjustment has been settled, that final settlement will have happened, meaning the person who paid the adjustment will be out of pocket, and will need to call it back (using the same process).
Fun times in the world of collateral operations.