Template:CSA Transfer Description: Difference between revisions

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This is how the timing works for CSA transfers. Remember the {{{{{1}}}prov|Valuation Agent}} is simply the person making the demand. Terminology check: to make this easy we refer to both {{{{{1}}}prov|Delivery Amount}}s ''and'' {{{{{1}}}prov|Return Amount}}s as “'''{{{{{1}}}prov|Transfer Amount}}s'''”. The date on which someone actually demands a Transfer Amount we call a “'''{{{{{1}}}prov|Demand Date}}'''”.
This is how the timing works for CSA transfers. Remember the {{{{{1}}}prov|Valuation Agent}} is simply the person making the demand. Terminology check: to make this easy we refer to both {{{{{1}}}prov|Delivery Amount}}s ''and'' {{{{{1}}}prov|Return Amount}}s as “'''{{{{{1}}}prov|Transfer Amount}}s'''”. The date on which someone actually demands a Transfer Amount we call a “'''{{{{{1}}}prov|Demand Date}}'''”.


'''Valuation of {{{{{1}}}prov|Exposure}} and {{{{{1}}}prov|Value}} of {{{{{1}}}prov|Credit Support Balance}}''': Firstly, you must value what you are going to call. This is {{{{{1}}}prov|Credit Support Balance}} - {{{{{1}}}prov|Exposure}} (or vice versa).Per para {{{{{1}}}prov|2(a)}} the Transferor will transfer {{{{{1}}}prov|Eligible Credit Support}} having a {{{{{1}}}prov|Value}} equal to the {{{{{1}}}prov|Transfer Amount}} ''as of the date of transfer''.  Under the {{{{{1}}}prov|Calculations}} provision all calculations happen at the relevant {{{{{1}}}prov|Valuation Time}}. Fluctuations in value after that time won’t invalidate the {{{{{1}}}prov|Transfer Amount}}, but they may mean a party can immediately call for more {{{{{1}}}prov|Credit Support}} (that is, have ''another'' {{{{{1}}}prov|Demand Date}}). The {{{{{1}}}prov|Valuation Time}} in turn keys off the {{{{{1}}}prov|Valuation Date}}.<ref>Under the {{csa}} you may specify either [[close of business]] on the {{csaprov|Valuation Date}} or the {{csaprov|Local Business Day}} immediately ''before'' it. Under the {{vmcsa}} you have flexibility to determine the {{vmcsaprov|Valuation Time}} as at the point you your book each day.</ref>
'''Valuation of {{{{{1}}}prov|Exposure}} and {{{{{1}}}prov|Credit Support Balance}}''': Firstly, you must value what you are going to call. This is {{{{{1}}}prov|Credit Support Balance}} - {{{{{1}}}prov|Exposure}} (or vice versa).Per para {{{{{1}}}prov|2(a)}} the Transferor will transfer {{{{{1}}}prov|Eligible Credit Support}} having a {{{{{1}}}prov|Value}} equal to the {{{{{1}}}prov|Transfer Amount}} ''as of the date of transfer''.  Under the {{{{{1}}}prov|Calculations}} provision all calculations happen at the relevant {{{{{1}}}prov|Valuation Time}}. Fluctuations in value after that time won’t invalidate the {{{{{1}}}prov|Transfer Amount}}, but they may mean a party can immediately call for more {{{{{1}}}prov|Credit Support}} (that is, have ''another'' {{{{{1}}}prov|Demand Date}}). The {{{{{1}}}prov|Valuation Time}} in turn keys off the {{{{{1}}}prov|Valuation Date}}.<ref>Under the {{csa}} you may specify either [[close of business]] on the {{csaprov|Valuation Date}} or the {{csaprov|Local Business Day}} immediately ''before'' it. Under the {{vmcsa}} you have flexibility to determine the {{vmcsaprov|Valuation Time}} as at the point you your book each day.</ref>


'''{{{{{1}}}prov|Demand Date}}''':  On any date that is (or promptly follows) a {{{{{1}}}prov|Valuation Date}}<ref>It need not be a {{{{{1}}}prov|Local Business Day}}.</ref> in which the {{{{{1}}}prov|Exposure}} has moved in its favour, one party may demand a {{{{{1}}}prov|Delivery Amount}}<ref>Under para {{{{{1}}}prov|2(a)}}</ref> or a {{{{{1}}}prov|Return Amount}}.<ref>Under para {{{{{1}}}prov|2(b)}}</ref>  
'''{{{{{1}}}prov|Demand Date}}''':  On any date that is (or promptly follows) a {{{{{1}}}prov|Valuation Date}}<ref>It need not be a {{{{{1}}}prov|Local Business Day}}.</ref> in which the {{{{{1}}}prov|Exposure}} has moved in its favour, one party may demand a {{{{{1}}}prov|Delivery Amount}}<ref>Under para {{{{{1}}}prov|2(a)}}</ref> or a {{{{{1}}}prov|Return Amount}}.<ref>Under para {{{{{1}}}prov|2(b)}}</ref>  

Revision as of 15:59, 6 December 2021

Timing of transfers under a CSA

This is how the timing works for CSA transfers. Remember the {{{{{1}}}prov|Valuation Agent}} is simply the person making the demand. Terminology check: to make this easy we refer to both {{{{{1}}}prov|Delivery Amount}}s and {{{{{1}}}prov|Return Amount}}s as “{{{{{1}}}prov|Transfer Amount}}s”. The date on which someone actually demands a Transfer Amount we call a “{{{{{1}}}prov|Demand Date}}”.

Valuation of {{{{{1}}}prov|Exposure}} and {{{{{1}}}prov|Credit Support Balance}}: Firstly, you must value what you are going to call. This is {{{{{1}}}prov|Credit Support Balance}} - {{{{{1}}}prov|Exposure}} (or vice versa).Per para {{{{{1}}}prov|2(a)}} the Transferor will transfer {{{{{1}}}prov|Eligible Credit Support}} having a {{{{{1}}}prov|Value}} equal to the {{{{{1}}}prov|Transfer Amount}} as of the date of transfer. Under the {{{{{1}}}prov|Calculations}} provision all calculations happen at the relevant {{{{{1}}}prov|Valuation Time}}. Fluctuations in value after that time won’t invalidate the {{{{{1}}}prov|Transfer Amount}}, but they may mean a party can immediately call for more {{{{{1}}}prov|Credit Support}} (that is, have another {{{{{1}}}prov|Demand Date}}). The {{{{{1}}}prov|Valuation Time}} in turn keys off the {{{{{1}}}prov|Valuation Date}}.[1]

{{{{{1}}}prov|Demand Date}}: On any date that is (or promptly follows) a {{{{{1}}}prov|Valuation Date}}[2] in which the {{{{{1}}}prov|Exposure}} has moved in its favour, one party may demand a {{{{{1}}}prov|Delivery Amount}}[3] or a {{{{{1}}}prov|Return Amount}}.[4]

{{{{{1}}}prov|Transfer Date}}: Under para {{{{{1}}}prov|3(a)}} ({{{{{1}}}prov|Transfers}}) if the {{{{{1}}}prov|Demand Date}} is a {{{{{1}}}prov|Local Business Day}} and demand is received before the {{{{{1}}}prov|Notification Time}}, the transfer must be made not later than close of business on the related Regular Settlement Day.[5] If received after the {{{{{1}}}prov|Notification Time}} (or at any time on a non-{{{{{1}}}prov|Local Business Day}}), the transfer must be made by close of business on the Regular Settlement Day relating to the day[6] after the Demand Date.

Settlement Day: Here is where things differ materially between the 1995 CSA and the 2016 VM CSA.
1995 CSA: The Settlement Day for any day (whether or not it is a {{{{{1}}}prov|Local Business Day}}) is:

  • Cash: for cash, the next {{{{{1}}}prov|Local Business Day}} and,
  • Securities: for securities, the {{{{{1}}}prov|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.

2016 VM CSA: In the new world we have the new concept of the Regular Settlement Day, and this is the same Local Business Day as the Demand Date. The run-off text at the end of Paragraph 3(a) gives you a little more flex: if the demand came after the Notification Time, then you must make the transfer by close on the Regular Settlement Day for the next day.[7]


Questions

{{{{{1}}}prov|Demand Date}} not a {{{{{1}}}prov|Local Business Day}}: What if the Demand Date is not a {{{{{1}}}prov|Local Business Day}}? E.g., what if it is received after the {{{{{1}}}prov|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 transferred credit support changes in value on the {{{{{1}}}prov|Settlement Day}}?

What happens to {{{{{1}}}prov|Exposure}}s if the {{{{{1}}}prov|Settlement Day}} is a long time after the Demand Date?[8] Is the demand, if answered with irrevocable instructions to deliver, treated as having been met, or does the {{{{{1}}}prov|Exposure}} stay outstanding until the collateral actually comes in? The answer (counterintuitive, given that the {{{{{1}}}prov|Transferee}} remains subject to the credit exposure during this time) is YES, thanks to the definitions of {{{{{1}}}prov|Delivery Amount}} and {{{{{1}}}prov|Return Amount}}, both of which include the words:

“...the {{{{{1}}}prov|Value}} as of that {{{{{1}}}prov|Valuation Date}} of the {{{{{1}}}prov|Transferor}}’s {{{{{1}}}prov|Credit Support Balance}} (adjusted to include any prior {{{{{1}}}prov|Delivery Amount}} and to exclude any prior {{{{{1}}}prov|Return Amount}}, the transfer of which, in either case, has not yet been completed and for which the relevant {{{{{1}}}prov|Settlement Day}} falls on or after such {{{{{1}}}prov|Valuation Date}}).”

This leads to some rather anomalous results.

  1. ↑ Under the 1995 CSA you may specify either close of business on the Valuation Date or the Local Business Day immediately before it. Under the 2016 VM CSA you have flexibility to determine the Valuation Time as at the point you your book each day.
  2. ↑ It need not be a {{{{{1}}}prov|Local Business Day}}.
  3. ↑ Under para {{{{{1}}}prov|2(a)}}
  4. ↑ Under para {{{{{1}}}prov|2(b)}}
  5. ↑ The “Settlement Day” under the 1995 CSA is slightly different.
  6. ↑ Note: ordinary day, not {{{{{1}}}prov|Local Business Day}}
  7. ↑ Just how the business days interact under the ISDA and CSA is about as complicated as string theory, by the way. For a cheat’s guide, see How business days work under the CSA. You’re welcome!
  8. ↑ As it may well be, under a 1995 CSA, if the collateral is corporate bonds held in a clearing system
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