Interest Period - CSA Provision

ISDA 1995 English Law Credit Support Annex

A Jolly Contrarian owner’s manual™

Overview — Summary — Premium — See also — Wikitext

Crosscheck:
→NY OG
→Eng OG
→NY VM
→Eng VM
→Eng IM

Interest Period in a Nutshell™

The JC’s Nutshell™ summary of this term has moved uptown to the subscription-only ninja tier. For the cost of ½ a weekly 🍺 you can get it here. Sign up at Substack. You can even ask questions! Ask about it here.

Original text

“Interest Period” means the period from (and including) the last Local Business Day on which an Interest Amount was transferred (or, if no Interest Amount has yet been transferred, the Local Business Day on which Eligible Credit Support or Equivalent Credit Support in the form of cash was transferred to or received by the Transferee) to (but excluding) the Local Business Day on which the current Interest Amount is transferred.

The varieties of ISDA CSA
Subject	1994 NY	1995 Eng	2016 VM NY	2016 VM Eng	2018 IM Eng
Preamble	Pre	Pre	Pre	Pre	Pre
Interpretation	1	1	1	1	1
Security Interest	2	-	2	-	2
Credit Support Obligations	3	2	3	2	3
Transfers, Calculations and Exchanges	-	3	-	3	-
Conditions Precedent, Transfer Timing, Calculations and Substitutions	4	-	4	-	4
Dispute Resolution	5	4	5	4	5
Holding and Using Posted Collateral	6	-	6	-	6
Transfer of Title, No Security Interest	-	5	-	5	-
Events of Default	7	6	7	6	7
Rights and Remedies	8	-	8	-	8
Representations	9	7	9	7	9
Expenses	10	8	10	8	10
Miscellaneous	11	9	11	9	11
Definitions	12	10	12	10	12
Elections and Variables	13	11	13	11	13

Resources and Navigation

Index: Click ᐅ to expand: CSA

Comparisons

Some development from the OG to the 2016 VM CSA that came about when ISDA’s crack drafting squad™, bless them, contrived in Para 5(c)(ii) to design an option no-one in their right mind would have wanted, namely to choose between Interest Transfer — in which you can have interest that accrues on your Credit Support Balances periodically paid to you — or Interest Amount, in which interest accruals are added to the Credit Support Balance, effectively folding all that into the weft and warp of daily transfers that you will be making anyway.

To be fair to them, the OG only contemplated transfer of accrued interest, which in the context of a modern, daily margined swap business, is barking mad, so at least having the option to just capitalise interest is better than not having it.

But better still would be just straight out capitalising interest, with no option to transfer it. Perhaps this is just me.

Basics

Sometimes known as a “calculation period”, a more general term that can refer to other, non-interest-related determinations, an “interest period” is the space in time between interest payments on an interest-bearing financial instrument. Common ones: annual and semi-annual (especially for fixed rate products, since QED the interest rate doesn’t periodically change so there’s no particular market risk consequence for paying interest more frequently and operationally it is a hassle). Now there is a credit risk consequence, credit being a function of duration, but it is, all told, at the short end and it relates to interest and not principal.

Anyhow: fixed rates tend to pay annually, semi-annually or quarterly and floating rates, being path-dependent and more susceptible to intra-period volatility, are more commonly, monthly, weekly or daily.

You may see some fastidious operations teams asking to modify this to be a calendar month thing. You have to wonder why.

Premium content

Here the free bit runs out. Subscribers click 👉 here. New readers sign up 👉 here and, for ½ a weekly 🍺 go full ninja about all these juicy topics👇

JC’s “nutshell” summary of the clause
Background reading and long-form essays
Template:Csa Interest Period premium

References