Calculations - CSA Provision

2016 ISDA Credit Support Annex (VM) (English law)
A Jolly Contrarian owner’s manual™

Resources and navigation

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

Paragraph 3(b) in a Nutshell™

Use at your own risk, campers!

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 business Values 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). view template

Full text of Paragraph 3(b)

3(b) Calculations. All calculations of Value and Exposure for purposes of Paragraph 2 and Paragraph 4(a) will be made by the relevant Valuation Agent as of the relevant Valuation Time, provided that, the Valuation Agent may use, in the case of any calculation of (i) Value, Values most recently reasonably available for close of business in the relevant market for the relevant Eligible Credit Support (VM) as of the Valuation Time and (ii) Exposure, relevant information or data most recently reasonably available for close of business in the relevant market(s) as of the Valuation Time. The Valuation Agent will notify each party (or the other party, if the Valuation Agent is a party) of its calculations not later than the Notification Time on the Local Business Day following the applicable Valuation Date (or, in the case of Paragraph 4(a), following the date of calculation). view template

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Content and comparisons

Aside from a classic proviso which adds, rather than removes, confusion, the ISDA’s crack drafting squad™ was unable to find any ways to improve or streamline the drafting of its forefathers in 1995. It would be disingenuous to feign surprise at this, so we will leave it (um, mainly) unremarked upon.

Template

Summary

CSA transfer timings

This is how the timing works for CSA transfers.

Terminology check: to make this easy, we refer to both 1995 CSAs and 1995 CSAs as “1995 CSAs”. This cuts out a lot of “Delivery Amount and/or Return Amount as the case may be” nonsense. The date on which someone demands a 1995 CSA we call a “1995 CSA”.

To be clear, neither Demand Date nor 1995 CSA are “ISDA canon”.

Remember the 1995 CSA is simply the person making the demand.

Value 1995 CSA and 1995 CSA: Firstly, value what you are going to call: the 1995 CSA under para 1995 CSA or 1995 CSA. This is roughly 1995 CSA - 1995 CSA (or vice versa).
1. Under 1995 CSA, the 1995 CSA will transfer 1995 CSA having a 1995 CSA as of the date of transfer of the 1995 CSA.
2. Per the 1995 CSA provision, all calculations happen at the 1995 CSA. Fluctuations in value after that time won’t invalidate the 1995 CSA, but they may mean a party can immediately call for more 1995 CSA (that is, have another 1995 CSA).
3. The 1995 CSA keys off the 1995 CSA.^[1]
1995 CSA: On or promptly following any 1995 CSA (it need not be a 1995 CSA) on which the 1995 CSA has moved in its favour, one party may demand a 1995 CSA (para 2(a)) or a 1995 CSA (para 2(b)).
1995 CSA: Under para 1995 CSA (1995 CSA) if the demand is received before the 1995 CSA on a 1995 CSA that is a 1995 CSA the transfer must be made by close of business on the related Regular Settlement Day.^[2] If received after the 1995 CSA or on a non-1995 CSA, the transfer must be made by close of business on the Regular Settlement Day relating to the day^[3] after the Demand Date.
Settlement Day: Here is where things differ materially between the 1995 CSA and the 2016 VM CSA.
1. 1995 CSA: The Settlement Day for any day (whether or not it is a 1995 CSA) is:
  1. Cash: for cash, the next 1995 CSA and,
  2. Securities: for securities, the 1995 CSA after the date on which a trade in the relevant security, if effected on the day in question, would have been settled in accordance with customary practice.
2. 2016 VM CSA: In the new world we have the new concept of the Regular Settlement Day, and this is the same Local Business Day as the Demand Date. The run-off text at the end of Paragraph 3(a) gives you a little more flex: if the demand came after the Notification Time, then you must make the transfer by close on the Regular Settlement Day for the next day. Just how the business days interact under the ISDA and CSA is about as complicated as string theory, by the way.