Template:Csa Transfers, Calculations and Exchanges summ: Difference between revisions

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====Transfer timing under a CSA====
We have set out the transfer timings — no small minefield — in the premium section, since it was really painful  to do. Freeloaders: just be aware of the slippage due to the {{{{{1}}}|Notification Time}}, the mindwarp that is the definition of {{{{{1}}}|Settlement Day}} and {{{{{1}}}|Regular Settlement Day}}, and the fact that the relevant {{{{{1}}}|Local Business Day}} is in the place of receipt, not {{{{{1}}}|Transmission}}, and so on.
This is how the timing works for CSA transfers. Remember the {{{{{1}}}|Valuation Agent}} is simply the person making the demand. Terminology check: to make this easy we refer to both {{{{{1}}}|Delivery Amount}}s ''and'' {{{{{1}}}|Return Amount}}s as “'''{{{{{1}}}|Transfer Amount}}s'''”. The date on which someone actually demands a Transfer Amount we call a “'''{{{{{1}}}|Demand Date}}'''”.


'''Valuation of {{{{{1}}}|Exposure}} and {{{{{1}}}|Credit Support Balance}}''': Firstly, you must value what you are going to call, which will be the Transfer Amount under para {{{{{1}}}|2(a)}} or {{{{{1}}}|2(b)}}. This is roughly {{{{{1}}}|Credit Support Balance}} - {{{{{1}}}|Exposure}} (or ''vice versa'').  
The reality is that collateral operations teams have got most of this taped, automated, and if anything were to foul up they would have long since ironed it out. And the move to call-cash daily margining has probably decomplicated things, too.


Per para {{{{{1}}}|2(a)}} the {{{{{1}}}|Transferor}} will transfer {{{{{1}}}|Eligible Credit Support}} having a {{{{{1}}}|Value}} equal to the {{{{{1}}}|Transfer Amount}} ''as of the date of transfer''.  Under the {{{{{1}}}|Calculations}} provision all calculations happen at the relevant {{{{{1}}}|Valuation Time}}. Fluctuations in value after that time won’t invalidate the {{{{{1}}}|Transfer Amount}}, but they may mean a party can immediately call for more {{{{{1}}}|Credit Support}} (that is, have ''another'' {{{{{1}}}|Demand Date}}). The {{{{{1}}}|Valuation Time}} in turn keys off the {{{{{1}}}|Valuation Date}}.<ref>Under the {{csa}} you may specify either [[close of business]] on the {{csaprov|Valuation Date}} or the {{csaprov|Local Business Day}} immediately ''before'' it. Under the {{vmcsa}} you have flexibility to determine the {{vmcsaprov|Valuation Time}} as at the point you your book each day.</ref>
====Exchanges====
{{csa exchanges|{{{1}}}}}


'''{{{{{1}}}|Demand Date}}''':  On any date that is (or promptly follows) a {{{{{1}}}|Valuation Date}}<ref>It need not be a Local Business Day.</ref> in which the {{{{{1}}}|Exposure}} has moved in its favour, one party may demand a {{{{{1}}}|Delivery Amount}}<ref>Under para 2(a).</ref> or a {{{{{1}}}|Return Amount}}.<ref>Under para 2(b).</ref>
'''{{{{{1}}}|Transfer Date}}''': Under para {{{{{1}}}|3(a)}} ({{{{{1}}}|Transfers}}) if the {{{{{1}}}|Demand Date}} is a {{{{{1}}}|Local Business Day}} and demand is received ''before'' the {{{{{1}}}|Notification Time}}, the transfer must be made not later than [[close of business]] on the related [[Regular Settlement Day - VM CSA Provision|''Regular'' Settlement Day]].<ref>The “{{csaprov|Settlement Day}}” under the {{csa}} is slightly different.</ref> If received ''after'' the {{{{{1}}}|Notification Time}} (or at any time on a non-{{{{{1}}}|Local Business Day}}), the transfer must be made by close of business on the {{vmcsaprov|Regular Settlement Day}} relating to the day<ref>Note: ''ordinary'' day, ''not'' Local Business Day</ref> ''after'' the Demand Date. <br>
'''{{csaprov|Settlement Day}}''': Here is where things differ materially between the {{csa}} and the {{vmcsa}}.<br>
'''{{csa}}''': The {{csaprov|Settlement Day}} for ''any'' day (whether or not it is a {{{{{1}}}|Local Business Day}}) is:
*'''Cash''': for cash, the next {{{{{1}}}|Local Business Day}} and,
*'''Securities''': for securities, the {{{{{1}}}|Local Business Day}} after the date on which a trade in the relevant security, if effected on the day in question, would have been settled in accordance with customary practice.
'''{{vmcsa}}''': In the new world we have the new concept of the [[Regular Settlement Day - VM CSA Provision|''Regular'' Settlement Day]], and this is the same {{vmcsaprov|Local Business Day}} as the Demand Date. The run-off text at the end of Paragraph {{vmcsaprov|3(a)}} gives you a little more flex: if the demand came after the {{vmcsaprov|Notification Time}}, then you must make the transfer by close on the {{vmcsaprov|Regular Settlement Day}} for the next day.<ref>Just how the business days interact under the ISDA and CSA is about as complicated as string theory, by the way. For a cheat’s guide, see [[How business days work under the CSA]]. You’re welcome!</ref>
====Questions====
====Questions====
'''{{{{{1}}}|Demand Date}} not a {{{{{1}}}|Local Business Day}}''': What if the Demand Date is not a {{{{{1}}}|Local Business Day}}? E.g., what if it is received after the {{{{{1}}}|Notification Time}} on a Friday, meaning the {{csaprov|Settlement Day}} takes place on the date on which a trade, effected on a Saturday, would have been settled in accordance with customary practice?
'''{{{{{1}}}|Demand Date}} not a {{{{{1}}}|Local Business Day}}''': What if the Demand Date is not a {{{{{1}}}|Local Business Day}}? E.g., what if it is received after the {{{{{1}}}|Notification Time}} on a Friday, meaning the {{csaprov|Settlement Day}} takes place on the date on which a trade, effected on a Saturday, would have been settled in accordance with customary practice?

Revision as of 19:49, 13 May 2024

We have set out the transfer timings — no small minefield — in the premium section, since it was really painful to do. Freeloaders: just be aware of the slippage due to the {{{{{1}}}|Notification Time}}, the mindwarp that is the definition of {{{{{1}}}|Settlement Day}} and {{{{{1}}}|Regular Settlement Day}}, and the fact that the relevant {{{{{1}}}|Local Business Day}} is in the place of receipt, not {{{{{1}}}|Transmission}}, and so on.

The reality is that collateral operations teams have got most of this taped, automated, and if anything were to foul up they would have long since ironed it out. And the move to call-cash daily margining has probably decomplicated things, too.

Exchanges

A counterparty who has posted one form of {{{{{1}}}|Eligible Credit Support}} and can ask the {{{{{1}}}|Transferee}} to switch it for something else. The {{{{{1}}}|Transferee}} doesn’t have to, but derivatives counterparties being the reasonable commercial fellows they are — and their operations teams being no-nonsense pragmatists they are — they will generally allow this as part of the normal ebb and flow of collateral operations. Probably less of a thing now 2016 VM CSAs tend to be cash only and base currency cash at that, but the possibility remains, and as, to our enduring regreet, we know, ISDA’s crack drafting squad™ is not usually one to let unexplored possibilities go undocumented.

Note here the {{{{{1}}}|Transferor}} can ask for an exchange, but the {{{{{1}}}|Transferee}} is not obliged to accept it. This is a fundamental provision of “title transfer”: once the {{{{{1}}}|Eligible Credit Support}} is delivered under a title-transfer 1995 CSA, the {{{{{1}}}|Transferee}} owns it absolutely. It only has to return {{{{{1}}}|Equivalent Credit Support}}. This is a special, legal ninja[1] use of the word “equivalent”. It means “fungible”; exactly the same as ~; not “broadly similar to ~”.

This is important also from a pricing (and operational) perspective: otherwise the {{{{{1}}}|Transferor}} would have a “worst-of” option and would be entitled to continually switch into the "cheapest to deliver" of the {{{{{1}}}|Eligible Credit Support}}. Needless to say, the increased collateral flows would also increase the operational burden.

{{{{{1}}}|Delivery Amount}}s: Contrast this with {{{{{1}}}|Delivery Amounts}}, where a {{{{{1}}}|Transferor}} has the option to deliver the cheapest of the {{{{{1}}}|Eligible Credit Support}} specified in the 1995 CSA.

{{{{{1}}}|Return Amount}}s: A {{{{{1}}}|Transferee}} does have a (limited) option in terms of selecting the {{{{{1}}}|Return Amount}} should there be a requirement to return posted credit support: it can select the cheapest to deliver of all the {{{{{1}}}|Eligible Credit Support}} that has been posted to it which currently comprises its {{{{{1}}}|Credit Support Balance}}.

Questions

{{{{{1}}}|Demand Date}} not a {{{{{1}}}|Local Business Day}}: What if the Demand Date is not a {{{{{1}}}|Local Business Day}}? E.g., what if it is received after the {{{{{1}}}|Notification Time}} on a Friday, meaning the Settlement Day takes place on the date on which a trade, effected on a Saturday, would have been settled in accordance with customary practice?

  • Securities: For securities this is ok: a trade effected on a non-business day would be deemed to be effected on the next following Local Business Day anyway, so it would pick this up.
  • Cash: For cash, not so clear.

What happens if the transferred credit support changes in value on the {{{{{1}}}|Settlement Day}}?

What happens to {{{{{1}}}|Exposure}}s if the {{{{{1}}}|Settlement Day}} is a long time after the Demand Date?[2] Is the demand, if answered with irrevocable instructions to deliver, treated as having been met, or does the {{{{{1}}}|Exposure}} stay outstanding until the collateral actually comes in? The answer (counterintuitive, given that the {{{{{1}}}|Transferee}} remains subject to the credit exposure during this time) is YES, thanks to the definitions of {{{{{1}}}|Delivery Amount}} and {{{{{1}}}|Return Amount}}, both of which include the words:

“...the {{{{{1}}}|Value}} as of that {{{{{1}}}|Valuation Date}} of the {{{{{1}}}|Transferor}}’s {{{{{1}}}|Credit Support Balance}} (adjusted to include any prior {{{{{1}}}|Delivery Amount}} and to exclude any prior {{{{{1}}}|Return Amount}}, the transfer of which, in either case, has not yet been completed and for which the relevant {{{{{1}}}|Settlement Day}} falls on or after such {{{{{1}}}|Valuation Date}}).”

What if I have to pay out a Transaction termination amount which the counterparty is already holding all or some of by way of variation margin? Since it will owe me that back, we can just off set those and call it quits, right? Wrong. See our separate article on that issue.

  1. ↑ Oh, all right, and GMSLA ninja, Repo ninja and other kinds of ninjas too.
  2. ↑ As it may well be, under a 1995 CSA, if the collateral is corporate bonds held in a clearing system
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