2016 ISDA VM CSA nutshell

2016 VM CSA Anatomy™ →Go uptown Resources Full wikitext | Nutshell wikitext Navigation 1 (Interpretation) | 2 (Credit Support Obligations) | 3 (Transfers, Calculations and Exchanges) | 4 (Dispute Resolution) | 5 (Title Transfer etc) | 6 (Default) | 7 (Representation) | 8 (Expenses) | 9 (Miscellaneous) | 10 (Definitions) | 11 (Elections and Variables) Index: Click ᐅ to expand: 2016 VM CSA 2018 CSD 1995 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.

2016 Credit Support Annex for Variation Margin (VM) dated as of ………………………. to the Schedule to the ISDA Master Agreement dated as of ........................................................... between ........................................................ and .................................................... (“Party A”) (“Party B”)

This Annex supplements the ISDA Master Agreement as part of its Schedule. It is the Confirmation for a Transaction comprising the credit support arrangements under it.
1 Interpretation
1(a) Definitions and Inconsistency. Capitalised terms not otherwise defined are defined in Paragraph 10. This Annex prevails over the Schedule, and Paragraph 11 prevails over the rest of this Annex. “Transfer” means, for cash, payment and, otherwise, delivery.
1(b) Scope of this Annex and the Other CSA: Only Covered Transactions specified in Paragraph 11 will count towards “Exposure” under this Annex. Any Other CSA is therefore amended to exclude the Covered Transactions (and this Annex itself) from its “Exposure” calculation. Except where Credit Support Offsets applies, this Annex will not affect the parties’ initial margin obligations on Covered Transactions documented under any Other CSA.
2 Credit Support Obligations

2(a) Delivery Amount. If the Transferee demands a Delivery Amount at least equal to the Transferor’s Minimum Transfer Amount on (or following) a Valuation Date, the Transferor must transfer Eligible Credit Support with a Value of the Delivery Amount (rounded under Paragraph 11(c)(vi)(B)) to the Transferee. The “Delivery Amount” is the amount by which the Transferee’s Exposure exceeds the Value of the Transferor’s Credit Support Balance on that Valuation Date (adjusted for pending but unsettled transfers).

2(b) Return Amount. If the Transferor demands a Return Amount at least equalling the Transferee’s Minimum Transfer Amount on a Valuation Date, the Transferee must transfer the specified Equivalent Credit Support (VM) with a Value of the Return Amount (VM) (rounded under Paragraph 11(c)(vi)(B)) to the Transferee and the Credit Support Balance (VM) will be proportionately reduced. The “Return Amount (VM)” is the amount by which the Value of the Transferor’s Credit Support Balance (VM) (adjusted for pending but unsettled transfers) exceeds the Transferee’s Exposure.
3(a) Transfers. All transfers of Eligible Credit Support (VM), Equivalent Credit Support (VM), Interest Payment (VM) or Equivalent Distributions will be made following the relevant receipient’s instructions:

3(a)(i) for cash, by transfer into the recipient’s bank account;

3(a)(ii) for physically settled certificated securities, by delivery in appropriate physical form to the recipient with duly executed transfer instruments, stamps and documents needed to effect legally valid transfer of legal and beneficial title to the recipient; and

3(a)(iii) for book-entry securities, by causing the securities intermediary to change its books and records to reflect a legally effective transfer of legal and beneficial title to the recipient.

Subject to Paragraph 4, if a deliveror receives a demand for Eligible Credit Support (VM) or Equivalent Credit Support (VM) by the Notification Time, then it must transfer by the close of business on the Regular Settlement Day for the date of the demand; if later than that, by close of business on the Regular Settlement Day for the following day.
3(b) Calculations. The Valuation Agent will calculate Value and Exposure for Paragraph 2 (transfers) and 4(a) (disputes) as of the Valuation Time.

When calculating Value, it may use close of businessValues for the Eligible Credit Support (VM) as of the Valuation Time. When calculating Exposure, it may use close of business data in relevant markets as of the Valuation Time.

The Valuation Agent will transmit its calculations by the Notification Time on the Local Business Day following the Valuation Date (or other calculation date).
3(c) Exchanges.

(i) On any Local Business Day the Transferor may ask the Transferee to exchange some “New Credit Support (VM)” for some “Original Credit Support (VM)” already in its Credit Support Balance (VM).

(ii) If the Transferee consents:

(A) the Transferor must transfer the New Credit Support (VM) to the Transferee on the Settlement Day after it receives the Transferee’s consent; and

(B) the Transferee must transfer to equivalent Original Credit Support (VM), with a prevailing Value as close as practicable to, but not more than, that of the New Credit Support (VM), to the Transferor on the Settlement Day after the Transferee receives the New Credit Support (VM) (the “Exchange Date”).

4 Dispute Resolution
4(a) Disputed Calculations or Valuations. If a Disputing Party disputes any collateral call (the Value of either the Exposure or the Credit Support being transferred):

• it must give notice by close of business on the date the transfer is due (if a Delivery Amount (VM) or Return Amount (VM)) or, the Local Business Day following the date of transfer (if a transfer of Eligible Credit Support (VM) or Equivalent Credit Support (VM));
• it must transfer any undisputed amount by close of business on the date the transfer is due;
• the parties will try resolve the dispute. If by the Resolution Time they haven’t:
  • Disputes as to Exposure: the Valuation Agent will recalculate the disputed portion of the Exposure as of the Recalculation Date by:
    • averaging mid-market quotations for the Market Quotation from four Reference Market-makers (if a 1992 ISDA-style close out mechanism); or from four third parties for the Close-out Amount (for a 2002 ISDA-style close out mechanism), in either case from those parties who will provide one (and if none will, the Valuation Agent’s original calculations will stand); and
    • calculating the outstanding Credit Support Balance as per Paragraph 11(f)(ii);
  • Disputes as to Credit Support Value: recalculating the Value as of the date of transfer.
    

The Valuation Agent will notify each party by the Notification Time on the Local Business Day following the Resolution Time. Then the appropriate transfer has to be made.
4(b) No Event of Default. A Party’s failure to meet a collateral call which it is disputing under Paragraph 4(a) will not be an Event of Default while the dispute resolution procedures are in train. Once completed, of course, a failure to transfer by the due date will again be a Failure to Pay or Deliver.
Template:Nutshell 2016 CSA 5 6. Default.
If there is an Early Termination Date following an Event of Default, the Value of the Credit Support Balance (VM), determined of the Early Termination Date, will be an Unpaid Amount due to the Transferor under Section 6(e). For the Transaction represented by this Annex:

(a) any Market Quotation will be zero;

(b) any Loss will be limited to the Unpaid Amount representing the Value of the relevant Credit Support Balance (VM) and any unsatisfied Interest Payment (VM) obligations;

(c) any Close-out Amount will be zero; and

(d) there will be no Unpaid Amount relating to any unsatisfied obligation under Paragraph 2 or Paragraph 3(c).

Paragraph 7. Representation
Each party represents on each transfer date that it has the right to transfer all property it transfers under this Annex, free of any encumbrance (other than a customary clearing system lien).
Paragraph 8. Expenses
Each party will be liable for its own costs (including stamp duties) of performing its obligations under this Annex).
9 Miscellaneous
9(a) Default Interest. Except where there is a Dispute:

(i) if a Transferee fails to make any transfer when due, any Return Amount or income Distribution it must pay interest at the Default Rate on the Value as of the Valuation Date, of the items not transferred, from (and including) the due date for transfer to (but excluding) their actual date of transfer, compounding daily.

(ii) if an Interest Payer (VM) fails to make, when due, any transfer of an Interest Payment (VM), it must pay the Interest Payee (VM) interest at the Default Rate (and for such purposes, if the Default Rate is less than zero, it will be deemed to be zero) multiplied by that Interest Payment (VM), from the due date for payment to (but excluding) their actual date of payment, compounding daily.

9(b) Good Faith and Commercially Reasonable Manner. The parties must perform all obligations under this Annex, in good faith and in a commercially reasonable manner.
9(c) Demands and Notices. Section 12 of the ISDA Master Agreement applies.
9(d) Specifications of Certain Matters. If this Annex says something can be “specified in Paragraph 11”, you can specify it in a Confirmation or other document between the parties, too.
Template:Nutshell 2016 CSA 9(e) Template:Nutshell 2016 CSA 9(f) Template:Nutshell 2016 CSA 9(g) Template:Nutshell 2016 CSA 9(h) Paragraph 10. Definitions
In this Annex:
Template:Nutshell 2016 CSA Base Currency “Base Currency Equivalent” of an amount in a currency other than the Base Currency (the “Other Currency”) is the amount of Base Currency the Valuation Agent determines is needed to buy that Other Currency amount at the prevailing spot exchange rate on the Valuation Date.
A Transferor’s “Credit Support Balance (VM)” on a Valuation Date is the aggregate of all Eligible Credit Support (VM) that it has transferred to the Transferee (including any Distributions or redemption proceeds) as reduced by any Return Amounts transferred under Paragraph 2(b), exchanges made under Paragraph 3(c)(ii) or the default provisions under Paragraph 6 and as adjusted for interest accrual under Paragraph 5(c)(ii). Any Equivalent Distributions not transferred when due under Paragraph 5(c)(i) will form part of the Credit Support Balance (VM).
Template:Nutshell 2016 CSA Credit Support Eligibility Condition (VM) Template:Nutshell 2016 CSA Delivery Amount (VM) Template:Nutshell 2016 CSA Delivery Amount Reduction (VM) Template:Nutshell 2016 CSA Disputing Party Template:Nutshell 2016 CSA Distributions Template:Nutshell 2016 CSA Distributions Date “Eligible Credit Support (VM)” means, for a party, the items specified for that party in Paragraph 11(c)(ii), and where any securities are specified, includes their redemption proceeds.
Template:Nutshell 2016 CSA Eligible Currency Template:Nutshell 2016 CSA Eligible Return Amount (VM) Template:Nutshell 2016 CSA Equivalent Credit Support (VM) Template:Nutshell 2016 CSA Equivalent Distributions Template:Nutshell 2016 CSA Exchange Date A party’s “Exposure” means the amount it would pay (a positive Exposure) or receive (a negative Exposure) if all Covered Transactions other than this Credit Support Annex were terminated as at the Valuation Time following a Termination Event where the other party was the One Affected Party, the Base Currency was the Termination Currency and the Valuation Agent made the valuations on the party’s behalf using mid-market estimates of the amounts that would be required under the ISDA Master Agreement.
Template:Nutshell 2016 CSA Fungible Credit Support Type Template:Nutshell 2016 CSA FX Haircut Percentage Template:Nutshell 2016 CSA Interest Adjustment Reduction Amount (VM) Template:Nutshell 2016 CSA Interest Amount (VM) “Interest Payee (VM)” means the one who is not the Interest Payer (VM).
“Interest Payer (VM)” means the Transferee, unless “Negative Interest” applies in Paragraph 11(g)(iii) and there is a negative Interest Payment (VM) payable, in which case it will be the Transferor.
Template:Nutshell 2016 CSA Interest Payment (VM) “Interest Period” means the period from and including the date on which a Credit Support Balance (VM) is first transferred to a party to but excluding the first day on which interest becomes due on (or is applied to) that Credit Support Balance (VM), and from (and including) that day to but excluding the next one.
Template:Nutshell 2016 CSA Interest Rate (VM) Template:Nutshell 2016 CSA Legal Eligibility Requirements Template:Nutshell 2016 CSA Legal Ineligibility Notice “Local Business Day” means:

(i) Dematerialised securities: for securities transfers inside a clearance system, a day on which that clearance system executes settlement instructions;

(ii) Cash and other property: for cash and other transfers, a day on which commercial banks are open where the relevant account is located and in the principal financial centre for any relevant currency;

(iii) Resolution Time: for a Resolution Time, a day on which commercial banks are open in at least one Valuation Date Location for each Party; and

(iv) Notices: for any communication, a day on which commercial banks are open in the place specified for the recipient in the notices section.

Any “Minimum Transfer Amount” for a party will be specified in Paragraph 11. If not specified, it will be zero.
Template:Nutshell 2016 CSA New Credit Support (VM) “Notification Time” means 12 noon, London time, on a Local Business Day, unless otherwise specified in Paragraph 11(d)(iv).
Template:Nutshell 2016 CSA Original Credit Support (VM) Template:Nutshell 2016 CSA Other CSA Template:Nutshell 2016 CSA Other CSA Excluded Credit Support Template:Nutshell 2016 CSA Recalculation Date “Regular Settlement Day” means the Local Business Day on which one demands credit support.
Template:Nutshell 2016 CSA Resolution Time Template:Nutshell 2016 CSA Return Amount (VM) Template:Nutshell 2016 CSA Return Amount Reduction (VM) “Settlement Day” means, for any date:

(i) for cash transfers, the next Local Business Day; and

(ii) for securities transfers, the first Local Business Day after the date in which a securities trade made on that date would customarily settle (or, failing that, on the first Local Business Day after the date on which it is reasonably practicable to deliver the securities).

Template:Nutshell 2016 CSA Total Ineligibility Date “Transferee” means, on a Valuation Date, the party whose Exposure is positive and, who owes a Credit Support Balance (VM) to the other party.
“Transferor” means the guy who isn’t the Transferee.
Template:Nutshell 2016 CSA Transfer Ineligibility Date “Valuation Agent” is defined in Paragraph 11(d)(i).
“Valuation Date” means each day that is a business day in at least one Valuation Date Location for each of the parties.
“Valuation Date Location” is specified for each Party in Paragraph 11(d)(ii).
Template:Nutshell 2016 CSA Valuation Percentage “Valuation Time” means the time at which the Valuation Agent usually values derivatives transactions as at the end of the day (or as it otherwise determines in a commercially reasonable manner).
The “Value” of Eligible Credit Support on any Valuation Date is its Base Currency Equivalent, if cash, and, if securities, the Base Currency Equivalent of the bid price the Valuation Agent obtains, in each case multiplied by (Valuation Percentage – FX Haircut Percentage) (unless there has been a Default, in which case it will be just the Base Currency Equivalent of the amount in question). The Value of cash and securities in a Credit Support Balance that are not Eligible Credit Support at any time will be zero (also unless there has been a Default, in which case their Value will be determined as if they were Eligible Credit Support (VM)).
Paragraph 11. Elections and Variables
Template:Nutshell 2016 CSA 11(a) Template:Nutshell 2016 CSA 11(b) Template:Nutshell 2016 CSA 11(c) Template:Nutshell 2016 CSA 11(d) Template:Nutshell 2016 CSA 11(e) Template:Nutshell 2016 CSA 11(f) 11(g) Distributions and Interest Amount (VM)

(i) Interest Rate (VM). The “Interest Rate (VM)” for each Eligible Currency will be [SPECIFY].

(ii) Transfer of Interest Payment (VM) or application of Interest Amount (VM).

Interest Transfer: [Applies/does not apply].

Interest Payment Netting: [Applies/does not apply].

Interest Adjustment: [Applies/does not apply].

For the purposes of Paragraph 5(c)(ii)(B), the Credit Support Balance (VM) will be adjusted by the Transferee by the third Local Business Day of the following calendar month.

(iii) Other Interest Elections.

Negative Interest: [Applies/does not apply].

Daily Interest Compounding: [Applies/does not apply].

(iv) Alternative to Interest Amount (VM). The provisions of Paragraph 5(c)(ii) will apply.