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| {{csaanat|6|1995}} | | {{csaanat|6|1995}} |
| {{Csa default capsule|csa}} | | {{Csa default capsule|csa}} |
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| ===Why {{isdaprov|Unpaid Amount}}s and not {{isdaprov|Close-out Amount}}s?===
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| The {{csa}} is technically a {{isdaprov|Transaction}} under the {{isdama}} in its own right — that is deep [[ISDA]] lore — but it is still a ''weird'' {{isdaprov|Transaction}}, and the standard “[[replacement cost]]” method of valuation doesn’t work brilliantly: rather than having defined payments upfront, each of which can be valued and discounted back to now to reveal a [[present value]], payment obligations under a {{csa}} depend on the future performance of the ''other'' {{isdaprov|Transaction}}s in the portfolio under your {{isdama}}. So good luck determining the replacement value of something like that.
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| But the good news is you don’t have to: the {{csaprov|Credit Support Balance}} isn’t calculated by reference to its own discounted future cashflows: rather, it is just the inverse of the aggregate present value of all the other Transactions under the ISDA. So the “replacement cost” on any day is just the prevailing value of the {{csaprov|Credit Support Balance}}. It is therefore easier to treat that as an {{isdaprov|Unpaid Amount}} (none of this tedious mucking about with replacement costs and so on). But that means you have to deem the {{isdaprov|Close-Out Amount}}<ref>Or {{isdaprov|Market Quotation}}/{{isdaprov|Loss}}, if under a {{1992ma}}.Spoddy point: the definition of {{isdaprov|Loss}} in the {{1992ma}} ''includes'' the “Unpaid Amount” concept in the definition: “{{isdaprov|Loss}} includes losses and costs (or gains) in respect of any payment or delivery required to have been made (assuming satisfaction of each applicable condition precedent) on or before the relevant {{isdaprov|Early Termination Date}} and not made...” </ref> as zero.
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| ===Including “comprehensive” {{isdaprov|Termination Event}}s=== | | ===Including “comprehensive” {{isdaprov|Termination Event}}s=== |
| Consider expanding of the {{csaprov|Default}} provision under Paragraph {{csaprov|6}} of the {{tag|CSA}} to include “{{isdaprov|Termination Event}}s where all {{isdaprov|Transactions}} are {{isdaprov|Affected Transaction}}s”. This is as per Section 3.2 of the 2001 ISDA Margin Provisions which recommend that Paragraph {{csaprov|6}} of the {{tag|CSA}} should apply where all {{isdaprov|Transactions}} are closed out following an {{isdaprov|Event of Default}} or “Specified Condition” — the latter of which is defined to include the {{isdaprov|Termination Events}} listed under the {{isdama}}. It is likely that all {{isdaprov|Transaction}}s would be {{isdaprov|Affected Transactions}} should a {{isdaprov|Credit Event Upon Merger}} or {{isdaprov|Additional Termination Event}} occur. | | Consider expanding of the {{csaprov|Default}} provision under Paragraph {{csaprov|6}} of the {{tag|CSA}} to include “{{isdaprov|Termination Event}}s where all {{isdaprov|Transactions}} are {{isdaprov|Affected Transaction}}s”. This is as per Section 3.2 of the 2001 ISDA Margin Provisions which recommend that Paragraph {{csaprov|6}} of the {{tag|CSA}} should apply where all {{isdaprov|Transactions}} are closed out following an {{isdaprov|Event of Default}} or “Specified Condition” — the latter of which is defined to include the {{isdaprov|Termination Events}} listed under the {{isdama}}. It is likely that all {{isdaprov|Transaction}}s would be {{isdaprov|Affected Transactions}} should a {{isdaprov|Credit Event Upon Merger}} or {{isdaprov|Additional Termination Event}} occur. |
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ISDA 1995 English Law Credit Support Annex
In a Nutshell™ Section 6:
Paragraph 6. Default.
If there is an Early Termination Date following an Event of Default on a party the Credit Support Balance, determined as if the Early Termination Date were a Valuation Date, will be an Unpaid Amount owed to the Transferor under Section 6(e). For the avoidance of doubt, if Market Quotation applies then the Market Quotation for the Transaction constituted by this Annex will be zero; if Loss applies, the Loss for the Transaction will be just the Unpaid Amount representing the Credit Support Balance.
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1995 CSA full text of Section 6:
Paragraph 6. Default.
If an Early Termination Date is designated or deemed to occur as a result of an Event of Default in relation to a party, an amount equal to the Value of the Credit Support Balance, determined as though the Early Termination Date were a Valuation Date, will be deemed to be an Unpaid Amount due to the Transferor (which may or may not be the Defaulting Party) for purposes of Section 6(e). For the avoidance of doubt, if Market Quotation is the applicable payment measure for purposes of Section 6(e), then the Market Quotation determined under Section 6(e) in relation to the Transaction constituted by this Annex will be deemed to be zero, and, if Loss is the applicable payment measure for purposes of Section 6(e), then the Loss determined under Section 6(e) in relation to the Transaction will be limited to the Unpaid Amount representing the Value of the Credit Support Balance.
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Related Agreements
Click here for the text of Section 6 in the 1995 English Law CSA
Click here for the text of Section 6 in the 2016 English Law VM CSA
Click [[{{{3}}} - NY VM CSA Provision|here]] for the text of the equivalent, Section [[{{{3}}} - NY VM CSA Provision|{{{3}}}]] in the 2016 NY Law VM CSA
Comparisons
1995 CSA and 2016 VM CSA: click for comparison
{{nycsadiff {{{3}}}}}
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Template:Csa default capsule
Consider expanding of the Default provision under Paragraph 6 of the CSA to include “Termination Events where all Transactions are Affected Transactions”. This is as per Section 3.2 of the 2001 ISDA Margin Provisions which recommend that Paragraph 6 of the CSA should apply where all Transactions are closed out following an Event of Default or “Specified Condition” — the latter of which is defined to include the Termination Events listed under the ISDA Master Agreement. It is likely that all Transactions would be Affected Transactions should a Credit Event Upon Merger or Additional Termination Event occur.
See also
References