Use of Posted Collateral (VM) - NY VM CSA Provision
2016 NY VM CSA Anatomy™
References to Transfering Eligible Credit Support (VM) or Posted Credit Support (VM) under this 2016 NY Law VM CSA will be construed to apply as if the Secured Party still holds all Posted Collateral (VM) even where in fact it doesn’t.
For purposes of the obligation to Transfer Eligible Credit Support (VM) or Posted Credit Support (VM) pursuant to Paragraphs 3 and 5 and any rights or remedies authorized under this Agreement, the Secured Party will be deemed to continue to hold all Posted Collateral (VM) and to receive Distributions made thereon, regardless of whether the Secured Party has exercised any rights with respect to any Posted Collateral (VM) pursuant to (i) or (ii) above.
|
This is the classic part of your security interest 2016 NY Law VM CSA that converts it into a title transfer CSA, meaning — cough, as with much New York law frippery — that you might as well not bother with calling this a pledge or security interest in the first place.
So I give my asset to you, right, carefully only pledging it as security for my indebtedness to you, and protect myself from your credit risk because I retain beneficial ownership of the asset. It is mine, not yours, and should you explode into a thousand points of light, then, once I have settled my trading account with your administrator, I can have my asset back.
Right?
Except that you have the right to sell my asset, absolutely, to anyone else you want to, at any time, or actually, damn the torpedoes, hold it in your own name. Whereupon my claim against you is for the return of an asset you don’t have, or have put into your general bankruptcy estate, so you would have to go and buy it in the market, but since you have blown up, you can’t realistically do that, so I am, after all, your unsecured creditor and all this talk of security interests is a nonce.
Note the odd coda: references to Posted Collateral (VM) etc — should be deemed to assume you still own it, even though if you don’t? This is the dead giveaway here. This may be an attempt to avoid having to create an “Equivalent Credit Support” concept, though since ISDA’s crack drafting squad™ went full metal jacket on that enterprise in the 1995 CSA, it is not like we don’t have suitable language.
Oh, what sad times we live in.