Template:Csa Valuation comp

This is a collection of provisions relating to “valuation”. Clearly a pretty important part of a credit support arrangement, most of the operative provisions land in the {{{{{1}}}|Calculations}} and {{{{{1}}}|Dispute Resolution}} sections.

“Valuation ~” versus “Calculation ~”

You know that feeling you sometimes get that a business you are obliged to transact with — an insurer or a low-cost airline, for example — is deliberately making things hard for you to understand or challenge, in the hope that a large proportion of the customers simply won’t bother leaving the business to be able to charge for the service without actually providing it? Well, it seems like ISDA’s crack drafting squad™ are doing that here. For in the “Annex” versions of the CSA, ancient and modern, the Dates, Times, Locations and Agents which concern themselves with assessing the Value of the components of Credit Support are rejoice under the adjective “Valuation”. For reasons only known to a cruel almighty, the IM CSD uses the word “Calculation”. Why, readers? Why?

{{{{{1}}}|Value}}

The 2016 VM CSA adds in the FX Haircut Percentage into the multiplier, that being (in some jurisdictions) a fairly hefty surcharge for those people who like to collateralise in a currency other than the one in which their derivatives are denominated, and also (partially) corrects the snafu about ineligible credit support, at least on a Default.

Once there is a Default, you are working things out, and FX Haircut Percentages and Valuation Percentages no longer matter because rather than assigning a notional value for the asset in the Base Currency if liquidated — and therefore giving yourself a little buffer for rainy day and so on — the rainy day has arrived. You are actually liquidating the asset, which will already have yesterday’s haircut applied to it, the counterparty isn’t to be giving you any more, and the money you raise from selling the Credit Support Balance, whether eligible or not, is real money, it really pays down your claim, and you have to account to the Defaulting Party’s administrator for anything left once you have closed out your ISDA.

Valuation/Calculation Date}}

The Valuation terms as between 1994 NY CSA and 1995 CSA didn’t change a great deal: here is a comparison. It got a bit more hinky with the arrival of the Modern CSAs: here’s a comparison between the 1995 and the 2016 VM CSAs.

Whereas the OG CSAs are kind of laissez-faire — yo, dudes, put whatever you like in the elections para, you know — because a credit support annex back then was a bit of a wheeze, and no-one really understood it — in the intervening 21 years ISDA’s crack drafting squad™ got all nudgy.

So they say “every business day” unless you specify something else and, like, you are not going to specify something else, are you, because regulatory rules say it has to be every day.

Note also the introduction in 2016 of a {{{{1}}}Valuation Date Location}}: each party gets to choose one, being its own hometown. If you’re off dancing the maypole, or whatever collective cultural tradition you follow in your part of the world (In the Czech Republic, I am told, at Easter the boys chase the girls round the kitchen table with riding crops. Which sounds kind fun), then you should have no fear you’ll get called on to make a collateral transfer.

Valuation/Calculation Time

The {{{{{1}}}Valuation Time}} definition loosens up somewhat in the VM CSAs. More discussion of that below, and here is a comparison, for the fiendishly interested.