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Revision as of 09:05, 23 August 2024
ISDA 2016 English Law VM Credit Support Annex
A Jolly Contrarian owner’s manual™ Interest Period in a Nutshell™
Original text
Resources and Navigation
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Comparisons
Some development from the OG to the 2016 VM CSA that came about when ISDA’s crack drafting squad™, bless them, contrived in Para 5(c)(ii) to design an option no-one in their right mind would have wanted, namely to choose between Interest Transfer — in which you can have interest that accrues on your Credit Support Balances periodically paid to you — or Interest Amount, in which interest accruals are added to the Credit Support Balance, effectively folding all that into the weft and warp of daily transfers that you will be making anyway.
To be fair to them, the OG only contemplated transfer of accrued interest, which in the context of a modern, daily margined swap business, is barking mad, so at least having the option to just capitalise interest is better than not having it.
But better still would be just straight out capitalising interest, with no option to transfer it. Perhaps this is just me.
Basics
Sometimes known as a “calculation period”, a more general term that can refer to other, non-interest-related determinations, an “interest period” is the space in time between interest payments on an interest-bearing financial instrument. Common ones: annual and semi-annual (especially for fixed rate products, since QED the interest rate doesn’t periodically change so there’s no particular market risk consequence for paying interest more frequently and operationally it is a hassle). Now there is a credit risk consequence, credit being a function of duration, but it is, all told, at the short end and it relates to interest and not principal.
Anyhow: fixed rates tend to pay annually, semi-annually or quarterly and floating rates, being path-dependent and more susceptible to intra-period volatility, are more commonly, monthly, weekly or daily.
You may see some fastidious operations teams asking to modify this to be a calendar month thing. You have to wonder why.
Premium content
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See also
“Interest Period” as it appears in: 94 NY CSA — 95 English CSA — 2016 NY VM CSA — 2016 English VM CSA — 2018 English IM CSA
References
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A Jolly Contrarian owner’s manual™ Go premium
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Overview
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Summary
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Premium content
Here the free bit runs out. Subscribers click 👉 here. New readers sign up 👉 here and, for ½ a weekly 🍺 go full ninja about all these juicy topics 👇
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- JC’s “nutshell” summary of the clause
- Background reading and long-form essays
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See also
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