Template:Csa Miscellaneous summ

Legally ineligible Credit Support

New for the regulatory margin CSAs

There is no such concept in the ancient CSAs, concerning as it does legal and not contractual ineligibility of credit support, and that being a function of criteria imposed by regulators on one’s mandatory obligations to post and collect margin, which did not exist before 2016, it is hardly surprising ISDA’s crack drafting squad™ of yore didn’t anticipate the need for this clause, which is convoluted, finnicky, and you can avoid the need for it entirely, should you post cash in a sensible currency.

Regulatory margin title transfer CSA vs security interest CSA

In most respects they are identical (with references to “Transferor” and “Transferee” switched to “Pledgor” and “Secured Party”). There are two technical differences, for completists:

• The exception in the 2016 VM CSA for Legally Ineligible Credit Support counting as Eligible Credit Support for the purpose of Credit Support Balance and Equivalent Credit Support. This is because, being a title transfer collateral arrangement, even though it is worth zero for the purposes of discharging one’s regulatory obligation to collect and return collateral, in the real world it is still worth something, and the Transferee still has to give it back, even if that has no effect on valuations under the 2016 VM CSA. With a 2016 NY Law VM CSA since the Secured Party never “gets” it in the first place, the Secured Party doesn’t have to give it back either. (By the way, if you aren’t saying, “hey, but what about rehypothecation under Paragraph 6(c)?” yet, you should be.)
• The exception for valuation on Default — that flows from the fundamental difference between the 2016 VM CSA a title transfer collateral arrangement which is a Transaction under the ISDA Master Agreement and the 2016 NY Law VM CSA which is a security financial collateral arrangement which is only a Credit Support Document under the ISDA Master Agreement.

One from the “well, I’ll be blowed” school of legal expression wherein ISDA’s crack drafting squad™ states the bleeding obvious for the benefit of those timid types who — despite being schooled in its weft and warp — don’t quite trust the common law to deliver elementary common sense.

On the one hand, you can see where they’re coming from — this is the same common law which concluded email is not an electronic messaging system, after all - but on the other hand come on.

Thanks for phoning it in, team.