Credit Support Document - ISDA Provision: Difference between revisions
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Note that a {{tag|CSA}} should '''not''' be treated as a {{isdaprov|Credit Support Document}}, as it is in fact a {{isdaprov|Transaction}} under the {{isdama}}. | Note that a {{tag|CSA}} should '''not''' be treated as a {{isdaprov|Credit Support Document}}, as it is in fact a {{isdaprov|Transaction}} under the {{isdama}}. | ||
Note also the pitfalls of providing [[Guarantee]]s with respect to individual {{isdaprov|Transaction}}s under an {{isdama}}. | Note also the pitfalls of providing [[Guarantee]]s with respect to individual {{isdaprov|Transaction}}s under an {{isdama}}. It doesn't work. [[Guarantee|Here's why]]. | ||
==[[Guarantees]] under the {{isdama}} and why a Transaction-Specific guarantee is a bad idea== | |||
Should a client request a transaction-specific parental guarantee under an {{isdama}} instead of the usual “all obligations” guarantee of all obligations under the {{isdama}} and all transactions under it, escalate immediately. | |||
We should *never* agree to the guarantee of individual {{isdaprov|Transaction}}s (or accepting [[letter of credit|Letters of Credit]] with respect to individual transactions) under an {{isdama}}. The reason relates to the way {{isdama}}s are closed out inder Section {{isdaprov|6(e)}}: | |||
{{box|{{isdaq|6(e)(i)|2002}}}} | |||
*On a close-out, each {{isdaprov|Transaction}} is terminated, the individual close-out amounts are determined, they’re aggregated up to a single net sum (i.e. negative exposures are netted off against positive ones) and the single Early Termination Payment is payable under {{isdaprov|6(e)}} ({{isdaprov|Payments on Early Termination}}) of the {{isdama}}. | |||
*That is to say, it is *not* payable under the {{isdaprov|Transaction}} at all - it's payable under the {{isdama}} itself. | |||
*Therefore, if the guarantee relates to the single {{isdaprov|Transaction}} only, at precisely the point you wish to rely on it (i.e., upon the party’s default), it will vanish. Same goes for Letters of Credit. | |||
{{isdaanatomy}} | |||
{{isdaanatomy}} | {{isdaanatomy}} | ||
Revision as of 09:32, 23 December 2015
Being the document by which Credit Support is provided by a Credit Support Provider.
Note that a CSA should not be treated as a Credit Support Document, as it is in fact a Transaction under the ISDA Master Agreement.
Note also the pitfalls of providing Guarantees with respect to individual Transactions under an ISDA Master Agreement. It doesn't work. Here's why.
Guarantees under the ISDA Master Agreement and why a Transaction-Specific guarantee is a bad idea
Should a client request a transaction-specific parental guarantee under an ISDA Master Agreement instead of the usual “all obligations” guarantee of all obligations under the ISDA Master Agreement and all transactions under it, escalate immediately.
We should *never* agree to the guarantee of individual Transactions (or accepting Letters of Credit with respect to individual transactions) under an ISDA Master Agreement. The reason relates to the way ISDA Master Agreements are closed out inder Section 6(e):
- On a close-out, each Transaction is terminated, the individual close-out amounts are determined, they’re aggregated up to a single net sum (i.e. negative exposures are netted off against positive ones) and the single Early Termination Payment is payable under 6(e) (Payments on Early Termination) of the ISDA Master Agreement.
- That is to say, it is *not* payable under the Transaction at all - it's payable under the ISDA Master Agreement itself.
- Therefore, if the guarantee relates to the single Transaction only, at precisely the point you wish to rely on it (i.e., upon the party’s default), it will vanish. Same goes for Letters of Credit.