Exchanges - CSA Provision

CSA Anatomy™ →Go uptown 3(c) Exchanges. 3(c)(i) Unless otherwise specified in Paragraph 11, the Transferor may on any Local Business Day by notice inform the Transferee that it wishes to transfer to the Transferee Eligible Credit Support specified in that notice (the “New Credit Support”) in exchange for certain Eligible Credit Support (the “Original Credit Support”) specified in that notice comprised in the Transferor’s Credit Support Balance. 3(c)(ii) If the Transferee notifies the Transferor that it has consented to the proposed exchange, (A) the Transferor will be obliged to transfer the New Credit Support to the Transferee on the firstSettlement Day following the date on which it receives notice (which may be oral telephonic notice) from the Transferee of its consent and (B) the Transferee will be obliged to transfer to the Transferor Equivalent Credit Support in respect of the Original Credit Support not later than the Settlement Day following the date on which the Transferee receives the New Credit Support, unless otherwise specified in Paragraph 11(d) (the “Exchange Date”); provided that the Transferee will only be obliged to transfer Equivalent Credit Support with a Value as of the date of transfer as close as practicable to, but in any event not more than, the Value of the New Credit Support as of that date. (View Template) Resources Full wikitext | Nutshell wikitext English Law | 1 Interpretation | 2 Credit Support Obligations | 3 Transfers, Calculations and Exchanges | 4 Dispute Resolution | 5 Transfer of Title, No Security Interest, Distributions and Interest Amount | 6 Default | 7 Representation | 8 Expenses | 9 Miscellaneous | 10 Definitions | 11 Elections and Variables · Base Currency and Eligible Currency · Credit Support Obligations · Valuation and Timing · Exchange Date · Dispute Resolution · Distributions and Interest Amount · Addresses for Transfers · Credit Support Offsets · Other CSA 2018 ISDA Credit Support Deed for Initial Margin Index: Click ᐅ to expand: CSA Tell me more Sign up for our newsletter — or just get in touch: for ½ a weekly 🍺 you get to consult JC. Ask about it here.

Commentary

Note here the Transferor can ask for an exchange, but the Transferee is not obliged to accept it. This is a fundamental provision of "title transfer" - once the Eligible Credit Support is delivered under a 1995 CSA, it is owned absolutely by the Transferee, subject only to an obligation to return Equivalent Credit Support.

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

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

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