Template:Ny csa 6(c) summ

Rehypothecation in the {{{{{1}}}}}

This is the classic part of your security interest {{{{{1}}}}} that converts it into a title transfer CSA, meaning — cough, as with much New York law frippery — that you might as well not bother with calling this 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 it back.

Right?

Except that, the moment you get it, unless we have agreed otherwise — and, by default the {{{{{1}}}}} assumes we have not — you may unconditionally sell my asset, absolutely, to anyone you want to, at any time, or actually, damn the torpedoes, just take it onto your own balance sheet and hold it in your own name. Whereupon, my claim against you is for the return of my asset that you no longer have, or have put into your general bankruptcy estate, so you would have to go and buy it in the market, but since you have blown up, you can’t realistically do that, so I am, after all, your unsecured creditor and all this talk of security interests is a nonce.

Note that the {{{{{1}}}prov|Secured Party}}’s right to flog off the {{{{{1}}}prov|Pledgor}}’s asset evaporates should it commit an Event of Default, Early Termination Event or one of the {{{{{1}}}}}’s {{{{{1}}}prov|Specified Condition}}s but — courtesy of Paragraph {{{{{1}}}prov|7(ii)}}, the {{{{{1}}}prov|Secured Party}}’s right to call a default as a result of the {{{{{1}}}prov|Pledgor}} continuing to flog off its assets — there doesn’t seem to be an obligation to buy back assets once they’re sold, by the way — only kicks in after 5 {{{{{1}}}prov|Local Business Days}}, by which stage even the guys disconsolately wandering around outside the office clutching Iron Mountain boxes will have pushed off.

Note the odd coda: references to {{{{{1}}}prov|Posted Collateral (VM)}} etc — should be deemed to assume you still own it, even though if you don’t? This is the dead giveaway here. This may be an attempt to avoid having to create an “Equivalent Credit Support” concept, though since ISDA’s crack drafting squad™ went full metal jacket on that enterprise as long ago as in the 1995 CSA, it is not like we don’t have suitable, road-tested — if a little anal — language.

Oh, what sad times we live in.