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2016 ISDA Credit Support Annex (VM) (English law)
A Jolly Contrarian owner’s manual™
Resources and navigation
Paragraph 11(c) in a Nutshell™
Use at your own risk, campers!
Full text of Paragraph 11(c)
11(c) Credit Support Obligations
- 11(c)(i) Delivery Amount (VM) and Return Amount (VM)
- (A) “Delivery Amount (VM)” has the meaning specified in Paragraph 2(a), unless otherwise specified here: [...]
- (B) “Return Amount (VM)” has the meaning specified in Paragraph 2(b), unless otherwise specified here: [...]
- 11(c)(ii) Eligible Credit Support (VM): Subject to Paragraph 9(e), if applicable, and each Credit Support Eligibility Condition (VM) applicable to it specified in Paragraph 11, if any, the following items will qualify as “Eligible Credit Support (VM)” for the party specified (as the Transferor):
- 11(c)(iii) Legally Ineligible Credit Support (VM). The provisions of Paragraph 9(e) will not apply to the [party/parties] specified here (as the Transferee):
- [...] Party A
- [...] Party B
- (A) “Total Ineligibility Date” has the meaning specified in Paragraph 9(e), unless otherwise specified here: [...]
- (B) “Transfer Ineligibility Date” has the meaning specified in Paragraph 9(e), unless otherwise specified here: [...]
- 11(c)(iv) Credit Support Eligibility Conditions (VM). The following conditions will each be a “Credit Support Eligibility Condition (VM)” for the party specified. Any item will not qualify as Eligible Credit Support (VM) if such item does not satisfy each Credit Support Eligibility Condition (VM) applicable to it.
- 11(c)(v) Valuation Percentage; FX Haircut Percentage
- (A) “Valuation Percentage” means, with respect to each party (as the Transferor) and item of Eligible Credit Support (VM), the percentage (expressed as a decimal) specified in Paragraph 11(c)(ii), provided that if nothing is specified in Paragraph 11(c)(ii), the Valuation Percentage will be 100% unless otherwise specified below. The Valuation Percentage for either party and any item of Eligible Credit Support (VM) will further be subject to the terms and conditions, if any, specified below as applicable to such party and item: [...]
- [If at any time the Valuation Percentage assigned to an item of Eligible Credit Support (VM) with respect to a party (as the Transferor) under this Annex is greater than the maximum permitted valuation percentage (prescribed or implied) for such item of collateral under any law requiring the collection of variation margin applicable to the other party (as the Transferee), then the Valuation Percentage with respect to such item of Eligible Credit Support (VM) and such party will be such maximum permitted valuation percentage.]
- (B) “FX Haircut Percentage” means, with respect to each party (as the Transferor) and item of Eligible Credit Support (VM), [[8%], unless the Eligible Credit Support (VM) or Equivalent Credit Support (VM) is in the form of cash [in a Major Currency] or is denominated in a currency that matches [an Eligible Currency], in which case the FX Haircut Percentage will be 0%.]
- [As used above, “Major Currency” means any of: (1) United States Dollar; (2) Canadian Dollar; (3) Euro; (4) United Kingdom Pound; (5) Japanese Yen; (6) Swiss Franc; (7) New Zealand Dollar; (8) Australian Dollar; (9) Swedish Kronor; (10) Danish Kroner; (11) Norwegian Krone or any other currency specified below: [...]
- 11(c)(vi) Thresholds.
- (A) “Minimum Transfer Amount” means with respect to Party A: [...]
- “Minimum Transfer Amount” means with respect to Party B: [...]
- (B) Rounding: The Delivery Amount (VM) and the Return Amount (VM) will be rounded up and down respectively to the nearest integral multiple of [...]
- 11(c)(vii) Transfers. “Regular Settlement Day” has the meaning specified in Paragraph 10, unless otherwise specified here: [...]
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Content and comparisons
Template:M comp disc 2016 CSA 11(c)
Summary
Just why one needs to call the person making a demand for Credit Support under a CSA a Valuation Agent, and not — well, the Party making the demand — seeing as that person is acting for themselves is not in any sense anyone’s agent (no, you can’t be your own agent, however much legal eagles would like that to be so. The principle — which I just made up but based off a real Latinism, is nemo agens in causa sua.)[1]
The starting proposition, which hasn’t really changed since the salad days of the First Men at the dawn of the Age of Swaps, is that if you are a big enough boy to trade derivatives, you are big enough — short hand for “have a treasury function of some kind competent enough” — to calculate your own margin requirements. This largely remains the case, though there are a few categories of financial services fauna who are not: Repackaging vehicles, for one, and investment funds who have outsourced their asset management to an investment adviser for another — and those margin borrowers and hedgies with prime brokerage relationships may find them being obliged to hand over the margin function, all for fairly sensible reasons.
And show me the legal eagle who doesn’t like a multi-level waterfall replacement Valuation Agents, reference dealers, law society presidents, professional arbitrators and other fallback waifs and strays should the parties not enjoy their agents’ valuations, should they not be forthcoming in a timely way etc.
See also
Template:M sa 2016 CSA 11(c)
References