Exchanges - CSA Provision

1995 ISDA Credit Support Annex (English Law) A Jolly Contrarian owner’s manual™ Resources and navigation Resources Full wikitext | Nutshell wikitext Navigation 1 (Interpretation) | 2 (Credit Support Obligations) | 3 (Transfers, Calculations and Exchanges) | 4 (Dispute Resolution) | 5 (Title Transfer etc) | 6 (Default) | 7 (Representation) | 8 (Expenses) | 9 (Miscellaneous) | 10 (Definitions) | 11 (Elections and Variables) Index — Click the ᐅ to expand: 1995 CSA Paragraph 3(c) in a Nutshell™ Use at your own risk, campers! Template:Nutshell 1995 CSA 3(c) view template Full text of Paragraph 3(c) 3(c) Exchanges. 3(c)(i) Unless otherwise specified in Paragraph 11, the Transferor may on any Local Business Day by notice inform the Transferee that it wishes to transfer to the Transferee Eligible Credit Support specified in that notice (the “New Credit Support”) in exchange for certain Eligible Credit Support (the “Original Credit Support”) specified in that notice comprised in the Transferor’s Credit Support Balance. 3(c)(ii) If the Transferee notifies the Transferor that it has consented to the proposed exchange, (A) the Transferor will be obliged to transfer the New Credit Support to the Transferee on the firstSettlement Day following the date on which it receives notice (which may be oral telephonic notice) from the Transferee of its consent and (B) the Transferee will be obliged to transfer to the Transferor Equivalent Credit Support in respect of the Original Credit Support not later than the Settlement Day following the date on which the Transferee receives the New Credit Support, unless otherwise specified in Paragraph 11(d) (the “Exchange Date”); provided that the Transferee will only be obliged to transfer Equivalent Credit Support with a Value as of the date of transfer as close as practicable to, but in any event not more than, the Value of the New Credit Support as of that date. view template The varieties of ISDA CSA Subject 1994 NY 1995 Eng 2016 VM NY 2016 VM Eng 2018 IM Eng Preamble Pre Pre Pre Pre Pre Interpretation 1 1 1 1 1 Security Interest 2 - 2 - 2 Credit Support Obligations 3 2 3 2 3 Transfers, Calculations and Exchanges - 3 - 3 - Conditions Precedent, Transfer Timing, Calculations and Substitutions 4 - 4 - 4 Dispute Resolution 5 4 5 4 5 Holding and Using Posted Collateral 6 - 6 - 6 Transfer of Title, No Security Interest - 5 - 5 - Events of Default 7 6 7 6 7 Rights and Remedies 8 - 8 - 8 Representations 9 7 9 7 9 Expenses 10 8 10 8 10 Miscellaneous 11 9 11 9 11 Definitions 12 10 12 10 12 Elections and Variables 13 11 13 11 13 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.

Content and comparisons

A counterparty who has posted one form of 1995 CSA and can ask the 1995 CSA to switch it for something else. The 1995 CSA doesn’t have to, but derivatives counterparties being the reasonable commercial fellows they are — and their operations teams being no-nonsense pragmatists they are — they will generally allow this as part of the normal ebb and flow of collateral operations. Probably less of a thing now 2016 VM CSAs tend to be cash only and base currency cash at that, but the possibility remains, and as, to our enduring regreet, we know, ISDA’s crack drafting squad™ is not usually one to let unexplored possibilities go undocumented.

Note here the 1995 CSA can ask for an exchange, but the 1995 CSA is not obliged to accept it. This is a fundamental provision of “title transfer”: once the 1995 CSA is delivered under a title-transfer 1995 CSA, the 1995 CSA owns it absolutely. It only has to return 1995 CSA. This is a special, legal ninja use of the word “equivalent”. It means “fungible”; exactly the same as ~; not “broadly similar to ~”.

This is important also from a pricing (and operational) perspective: otherwise the 1995 CSA would have a “worst-of” option and would be entitled to continually switch into the "cheapest to deliver" of the 1995 CSA. Needless to say, the increased collateral flows would also increase the operational burden.

1995 CSAs: Contrast this with 1995 CSA, where a 1995 CSA has the option to deliver the cheapest of the 1995 CSA specified in the 1995 CSA.

1995 CSAs: A 1995 CSA does have a (limited) option in terms of selecting the 1995 CSA should there be a requirement to return posted credit support: it can select the cheapest to deliver of all the 1995 CSA that has been posted to it which currently comprises its 1995 CSA.

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Summary

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General discussion

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See also

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References

A counterparty who has posted one form of 1995 CSA and can ask the 1995 CSA to switch it for something else. The 1995 CSA doesn’t have to, but derivatives counterparties being the reasonable commercial fellows they are — and their operations teams being no-nonsense pragmatists they are — they will generally allow this as part of the normal ebb and flow of collateral operations. Probably less of a thing now 2016 VM CSAs tend to be cash only and base currency cash at that, but the possibility remains, and as, to our enduring regreet, we know, ISDA’s crack drafting squad™ is not usually one to let unexplored possibilities go undocumented.

Note here the 1995 CSA can ask for an exchange, but the 1995 CSA is not obliged to accept it. This is a fundamental provision of “title transfer”: once the 1995 CSA is delivered under a title-transfer 1995 CSA, the 1995 CSA owns it absolutely. It only has to return 1995 CSA. This is a special, legal ninja use of the word “equivalent”. It means “fungible”; exactly the same as ~; not “broadly similar to ~”.

This is important also from a pricing (and operational) perspective: otherwise the 1995 CSA would have a “worst-of” option and would be entitled to continually switch into the "cheapest to deliver" of the 1995 CSA. Needless to say, the increased collateral flows would also increase the operational burden.

1995 CSAs: Contrast this with 1995 CSA, where a 1995 CSA has the option to deliver the cheapest of the 1995 CSA specified in the 1995 CSA.

1995 CSAs: A 1995 CSA does have a (limited) option in terms of selecting the 1995 CSA should there be a requirement to return posted credit support: it can select the cheapest to deliver of all the 1995 CSA that has been posted to it which currently comprises its 1995 CSA.