Template:CSA Transfer Description

Timing of transfers under a CSA

This is how the timing works for CSA transfers. Remember the {{{{{1}}}prov|Valuation Agent}} is simply the person making the demand. Terminology check: to make this easy we refer to both {{{{{1}}}prov|Delivery Amount}}s and {{{{{1}}}prov|Return Amount}}s as “{{{{{1}}}prov|Transfer Amount}}s”. The date on which someone actually demands a Transfer Amount we call a “{{{{{1}}}prov|Demand Date}}”.

Valuation of {{{{{1}}}prov|Exposure}} and {{{{{1}}}prov|Credit Support Balance}}: Firstly, you must value what you are going to call, which wiull be the Transfer Amount under para {{{{{1}}}prov|2(a)}} or {{{{{1}}}prov|2(b)}}. This is roughly {{{{{1}}}prov|Credit Support Balance}} - {{{{{1}}}prov|Exposure}} (or vice versa).

Per para {{{{{1}}}prov|2(a)}} the {{{{{1}}}prov|Transferor}} will transfer {{{{{1}}}prov|Eligible Credit Support}} having a {{{{{1}}}prov|Value}} equal to the {{{{{1}}}prov|Transfer Amount}} as of the date of transfer. Under the {{{{{1}}}prov|Calculations}} provision all calculations happen at the relevant {{{{{1}}}prov|Valuation Time}}. Fluctuations in value after that time won’t invalidate the {{{{{1}}}prov|Transfer Amount}}, but they may mean a party can immediately call for more {{{{{1}}}prov|Credit Support}} (that is, have another {{{{{1}}}prov|Demand Date}}). The {{{{{1}}}prov|Valuation Time}} in turn keys off the {{{{{1}}}prov|Valuation Date}}.

{{{{{1}}}prov|Demand Date}}: On any date that is (or promptly follows) a {{{{{1}}}prov|Valuation Date}} in which the {{{{{1}}}prov|Exposure}} has moved in its favour, one party may demand a {{{{{1}}}prov|Delivery Amount}} or a {{{{{1}}}prov|Return Amount}}.

{{{{{1}}}prov|Transfer Date}}: Under para {{{{{1}}}prov|3(a)}} ({{{{{1}}}prov|Transfers}}) if the {{{{{1}}}prov|Demand Date}} is a {{{{{1}}}prov|Local Business Day}} and demand is received before the {{{{{1}}}prov|Notification Time}}, the transfer must be made not later than close of business on the related Regular Settlement Day. If received after the {{{{{1}}}prov|Notification Time}} (or at any time on a non-{{{{{1}}}prov|Local Business Day}}), the transfer must be made by close of business on the Regular Settlement Day relating to the day after the Demand Date.

Settlement Day: Here is where things differ materially between the 1995 CSA and the 2016 VM CSA.
1995 CSA: The Settlement Day for any day (whether or not it is a {{{{{1}}}prov|Local Business Day}}) is:

• Cash: for cash, the next {{{{{1}}}prov|Local Business Day}} and,
• Securities: for securities, the {{{{{1}}}prov|Local Business Day}} 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.

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.

Questions

{{{{{1}}}prov|Demand Date}} not a {{{{{1}}}prov|Local Business Day}}: What if the Demand Date is not a {{{{{1}}}prov|Local Business Day}}? E.g., what if it is received after the {{{{{1}}}prov|Notification Time}} on a Friday, meaning the Settlement Day takes place on the date on which a trade, effected on a Saturday, would have been settled in accordance with customary practice?

• Securities: For securities this is ok: a trade effected on a non-business day would be deemed to be effected on the next following Local Business Day anyway, so it would pick this up.
• Cash: For cash, not so clear.

What happens if the transferred credit support changes in value on the {{{{{1}}}prov|Settlement Day}}?

What happens to {{{{{1}}}prov|Exposure}}s if the {{{{{1}}}prov|Settlement Day}} is a long time after the Demand Date? Is the demand, if answered with irrevocable instructions to deliver, treated as having been met, or does the {{{{{1}}}prov|Exposure}} stay outstanding until the collateral actually comes in? The answer (counterintuitive, given that the {{{{{1}}}prov|Transferee}} remains subject to the credit exposure during this time) is YES, thanks to the definitions of {{{{{1}}}prov|Delivery Amount}} and {{{{{1}}}prov|Return Amount}}, both of which include the words:

“...the {{{{{1}}}prov|Value}} as of that {{{{{1}}}prov|Valuation Date}} of the {{{{{1}}}prov|Transferor}}’s {{{{{1}}}prov|Credit Support Balance}} (adjusted to include any prior {{{{{1}}}prov|Delivery Amount}} and to exclude any prior {{{{{1}}}prov|Return Amount}}, the transfer of which, in either case, has not yet been completed and for which the relevant {{{{{1}}}prov|Settlement Day}} falls on or after such {{{{{1}}}prov|Valuation Date}}).”

What if I have to pay out a Transaction termination amount which the counterparty is already holding all or some of by way of {{{{{1}}}prov|Variation Margin}}? Since it will owe me that back, we can just off set those and call it quits, right? Wrong. See our separate article on that issue.