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.
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This is the classic part of your security interest 2016 NY Law VM CSA that converts it into a title transfer 2016 VM CSA, meaning — cough, as with much New York law frippery — that you might as well not bother with 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. Whereupon my claim against you is for the return of an asset you don’t have, and would have to go and buy in the market, but since you have blown up, you can’t really do that, so I am, after all, your unsecured creditor.
Oh, what sad times we live in.