Credit Support Document - ISDA Provision: Difference between revisions
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{{fullanat|isda|Credit Support Document |2002}} | {{fullanat|isda|Credit Support Document |2002}} | ||
Being the document by which {{isdaprov|Credit Support}} is provided by a {{isdaprov|Credit Support Provider}}. | Being the document by which {{isdaprov|Credit Support}} is provided by a {{isdaprov|Credit Support Provider}}. | ||
===The {{csa}} is ''not'' a Credit Support Document=== | |||
Note that a {{tag|CSA}} is '''not''' a {{isdaprov|Credit Support Document}}, and you should not list it as one in Part 4 of the Schedule, however tempting it might be. I mean it sounds like one, right? But no: the counterparty cannot be its own {{isdaprov|Credit Support Provider}}. The {{csa}} is, rather, a {{isdaprov|Transaction}} under the {{isdama}}. This is rather important to the whole issue of [[close-out netting]]. Deep [[ISDA lore]]. | |||
===[[Guarantees]] under the {{isdama}}: why {{isdaprov|Transaction}}-specific {{isdaprov|guarantee}}s don't work=== | |||
===[[Guarantees]] under the {{isdama}} | |||
{{isdaguaranteewarning}} | {{isdaguaranteewarning}} | ||
Should a client request a transaction-specific [[parental guarantee]] under an {{isdama}} instead of the usual [[all obligations guarantee|“all obligations” guarantee]] of all the counterparty’s obligations under the {{isdama}}, hit the alarm button. | |||
You should *never* agree to the {{isdaprov|guarantee}} of individual {{isdaprov|Transaction}}s (nor accept a [[letter of credit]] with respect to individual {{isdaprov|Transactions}}) under an {{isdama}}. If you do, because of the way {{isdama}}s are closed out under Section {{isdaprov|6(e)}} — or rather, ''aren't'' closed out, you might find that just when you want your guarantee to pay, the {{isdaprov|Transaction}} it is guaranteeing isn’t there anymore: | |||
{{ | |||
On a close-out, each {{isdaprov|Transaction}} is terminated, the individual close-out amounts are determined, they’re aggregated up to a single net sum (i.e. negative exposures are netted off against positive ones) and a single {{isdaprov|Close Out Amount}} is payable with respect to ''all terminated {{isdaprov|Transactions}}'' under {{isdaprov|6(e)}} ({{isdaprov|Payments on Early Termination}}) of the {{isdama}}.<ref>The {{isdama}} itself is never actually terminated, but carries impotently on in undead twilight, roaming the badlands like [[Nosferatu]] or the [[Flying Dutchman]], unloved, unredeemed, until the [[end of days]].</ref> | |||
*That is to say, it is *not* payable under the {{isdaprov|Transaction}} at all - it's payable under the {{isdama}} itself. | *That is to say, it is *not* payable under the {{isdaprov|Transaction}} at all - it's payable under the {{isdama}} itself. | ||
*Therefore, if the guarantee relates to the single {{isdaprov|Transaction}} only, at precisely the point you wish to rely on it (i.e., upon the party’s default), it will vanish. Same goes for | *Therefore, if the guarantee relates to the single {{isdaprov|Transaction}} only, at precisely the point you wish to rely on it (i.e., upon the party’s default), it will vanish. Same goes for [[letters of credit]]. | ||
{{ | {{ref}} |