Eligible Credit Support - CSA Provision

1995 ISDA Credit Support Annex (English Law) A Jolly Contrarian owner’s manual™ 11(b)(ii) in a Nutshell™ The JC’s Nutshell™ summary of this term has moved uptown to the subscription-only ninja tier. For the cost of ½ a weekly 🍺 you can get it here. Sign up at Substack. You can even ask questions! Ask about it here. 11(b)(ii) in all its glory 11(b)(ii) Eligible Credit Support. The following items will qualify as “Eligible Credit Support” for the party specified: In each case with checkboxes are for Party A; Party B; and Valuation Percentage (A) cash in an Eligible Currency (B) negotiable debt obligations issued by the Government of [ ] having an original maturity at issuance of not more than one year (C) negotiable debt obligations issue by the Government of [ ] having an original maturity at issuance of more than one year but not more than 10 years (D) negotiable debt obligation issued by the Government of [ ] having an original maturity at issuance of more than 10 years (E) other: edit The varieties of ISDA CSA Subject 1994 NY 1995 Eng 2016 VM NY 2016 VM Eng 2018 IM Eng Preamble Pre Pre Pre Pre Pre Interpretation 1 1 1 1 1 Security Interest 2 - 2 - 2 Credit Support Obligations 3 2 3 2 3 Transfers, Calculations and Exchanges - 3 - 3 - Conditions Precedent, Transfer Timing, Calculations and Substitutions 4 - 4 - 4 Dispute Resolution 5 4 5 4 5 Holding and Using Posted Collateral 6 - 6 - 6 Transfer of Title, No Security Interest - 5 - 5 - Events of Default 7 6 7 6 7 Rights and Remedies 8 - 8 - 8 Representations 9 7 9 7 9 Expenses 10 8 10 8 10 Miscellaneous 11 9 11 9 11 Definitions 12 10 12 10 12 Elections and Variables 13 11 13 11 13 Resources and Navigation Resources Full wikitext | Nutshell wikitext Navigation 1 (Interpretation) | 2 (Credit Support Obligations) | 3 (Transfers, Calculations and Exchanges) | 4 (Dispute Resolution) | 5 (Title Transfer etc) | 6 (Default) | 7 (Representation) | 8 (Expenses) | 9 (Miscellaneous) | 10 (Definitions) | 11 (Elections and Variables) Index — Click the ᐅ to expand: 1995 CSA Premium version of this page

Overview

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Summary

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What is, or is not, acceptable to post as credit support. In the olden days this was all a bit fraught, and accounted for much of the practical complication of the CSA as a document, and which (in the JC’s eyes, made it a sort of primordial smart contract, before there were such things as smart contracts.

The CSA governs a deterministic, but highly complicated flow of securities and currencies back and forth between counterparties daily, based on the Exposure of their portfolios. Who has to pay whom on any day, and what, is derivative — I know, right — of a load of extraneous factors besides that Exposure as a bare number: the “shape” of the derivatives book, the state of the market, the composition and market valuations of the Credit Support Balance already posted. Even a small firm will have multiple brokerage counterparties; a brokerage will have hundreds of thousands. There is simply no way of monitoring and accurately performing an arrangement as complicated as a Credit Support Annex manually. Only computers can do it. Hence, it is rather like a smart contract, and not just superficially, but practically: the “contract” as a meaningful thing is the operational reality, not the document. It lives in the configurations the parties operations teams punch into their respective collateral management applications.

If a number is mis-punched, or the application does not or cannot reflect what is stipulated on paper in the Credit Support Annex, no-one will ever know. At least, not until it is too late.

If your counterparty is a smoking ruin and you find out the Credit Support Balance you are holding comprises of illiquid pref shares listed on the Manila bourse, while the CSA prescribes only G7 on-the-run government securities, then guess what.

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• The JC’s famous Nutshell™ summary of this clause

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See also

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