Elections and Variables - VM CSA Provision: Difference between revisions

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

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Paragraph 11 in a Nutshell

Use at your own risk, campers!
Paragraph 11. Elections and Variables

Template:Nutshell 2016 CSA 11(a) Template:Nutshell 2016 CSA 11(b) Template:Nutshell 2016 CSA 11(c) Template:Nutshell 2016 CSA 11(d) Template:Nutshell 2016 CSA 11(e) Template:Nutshell 2016 CSA 11(f) 11(g) Distributions and Interest Amount (VM)

(i) Interest Rate (VM). The “Interest Rate (VM)” for each Eligible Currency will be [SPECIFY].
(ii) Transfer of Interest Payment (VM) or application of Interest Amount (VM).
Interest Transfer: [Applies/does not apply].
Interest Payment Netting: [Applies/does not apply].
Interest Adjustment: [Applies/does not apply].
For the purposes of Paragraph 5(c)(ii)(B), the Credit Support Balance (VM) will be adjusted by the Transferee by the third Local Business Day of the following calendar month.
(iii) Other Interest Elections.
Negative Interest: [Applies/does not apply].
Daily Interest Compounding: [Applies/does not apply].
(iv) Alternative to Interest Amount (VM). The provisions of Paragraph 5(c)(ii) will apply.

Template:Nutshell 2016 CSA 11(h) Template:Nutshell 2016 CSA 11(i) Template:Nutshell 2016 CSA 11(j)

Template:Nutshell 2016 CSA 11(k)

Full text of Paragraph 11

Paragraph 11. Elections and Variables

11(a) Base Currency and Eligible Currency

(i) “Base Currency” means [...] unless otherwise specified here: [...]
(ii) “Eligible Currency” means the Base Currency and each other currency specified here: [...]

11(b) Covered Transactions; Exposure

11(b)(i) The term “Covered Transactions” as used in this Annex includes any Transaction specified below that is entered into on or after [...], except as otherwise provided in the Confirmation of such Transaction:
For purposes of the foregoing, the term “Covered Transactions” includes: [Any Transaction [that is any of the following] [Swap], [Security-Based Swap], [OTC Derivative], [Physically Settled FX Forward] or [Physically Settled FX Swap]] [and is not any of the following: [Swap], [Security-Based Swap], [OTC Derivative], [Physically Settled FX Forward] or [Physically Settled FX Swap]] ...]
As used above:
[“OTC Derivative” means an “OTC derivative” or “OTC derivative contract” as defined in Article 2(7) of Regulation (EU) No 648/2012 of the European Parliament and of the Council of 4 July 2012 on OTC derivatives, central counterparties and trade repositories (“EMIR”) other than one which constitutes (i) a “foreign exchange forward” as defined in Article 7(1)(a) of the final draft regulatory technical standards on risk-mitigation techniques for OTC-derivative contracts not cleared by a CCP under Article 11(15) of EMIR dated March 8, 2016 (the “EMIR RTS”) for so long as such transactions are subject to the transitional exemption from the variation margin requirements under Article 39(6) of the EMIR RTS or (ii) a single stock equity option or index option transaction as referred to in Article 39(7) of the EMIR RTS for so long as such transactions are subject to the transitional exemption from the variation margin requirements under Article 39(7) of the EMIR RTS.]
[“Physically Settled FX Forward” means [...]]
[“Physically Settled FX Swap” means [...]]
[“Security-Based Swap” means a “security-based swap” as defined in Section 3(a)(68) of the U.S. Securities Exchange Act of 1934, as amended (“SEA”), and the rules adopted thereunder. For the avoidance of doubt, the term “Security-Based Swap” does not include a security-based swap that has been cleared by a “clearing agency” as such term is defined in Section 3(a)(23) of the SEA and the rules adopted thereunder.]
[“Swap” means a “swap” as defined in Section 1a(47) of the U.S. Commodity Exchange Act, as amended (“CEA”), and the regulations adopted thereunder. For the avoidance of doubt, the term “Swap” does not include a swap that has been cleared by a “derivatives clearing organization” as such term is defined in Section 1a(15) of the CEA and the regulations adopted thereunder.]
[For the purposes of the foregoing, a Transaction will be deemed to be entered into on or after the date specified in this Paragraph 11(b)(i) if an amendment, novation or other lifecycle event with respect to such Transaction would cause such Transaction to be entered into after such date under law applicable to either party requiring the collection or delivery of variation margin.]
11(b)(ii)Exposure” has the meaning specified in Paragraph 10, unless otherwise specified here: [...]

11(c) Credit Support Obligations

11(c)(i) Delivery Amount (VM) and Return Amount (VM)
(A) “Delivery Amount (VM)” has the meaning specified in Paragraph 2(a), unless otherwise specified here: [...]
(B) “Return Amount (VM)” has the meaning specified in Paragraph 2(b), unless otherwise specified here: [...]
11(c)(ii) Eligible Credit Support (VM): Subject to Paragraph 9(e), if applicable, and each Credit Support Eligibility Condition (VM) applicable to it specified in Paragraph 11, if any, the following items will qualify as “Eligible Credit Support (VM)” for the party specified (as the Transferor):


Party A Valuation Percentage Party B Valuation Percentage
(A) Cash in an Eligible Currency [...] [...]% [...] [...]%
(B) Other [...] [...]% [...] [...]%
11(c)(iii) Legally Ineligible Credit Support (VM). The provisions of Paragraph 9(e) will not apply to the [party/parties] specified here (as the Transferee):
[...] Party A
[...] Party B
(A) “Total Ineligibility Date” has the meaning specified in Paragraph 9(e), unless otherwise specified here: [...]
(B) “Transfer Ineligibility Date” has the meaning specified in Paragraph 9(e), unless otherwise specified here: [...]
11(c)(iv) Credit Support Eligibility Conditions (VM). The following conditions will each be a “Credit Support Eligibility Condition (VM)” for the party specified. Any item will not qualify as Eligible Credit Support (VM) if such item does not satisfy each Credit Support Eligibility Condition (VM) applicable to it.
11(c)(v) Valuation Percentage; FX Haircut Percentage
(A) “Valuation Percentage” means, with respect to each party (as the Transferor) and item of Eligible Credit Support (VM), the percentage (expressed as a decimal) specified in Paragraph 11(c)(ii), provided that if nothing is specified in Paragraph 11(c)(ii), the Valuation Percentage will be 100% unless otherwise specified below. The Valuation Percentage for either party and any item of Eligible Credit Support (VM) will further be subject to the terms and conditions, if any, specified below as applicable to such party and item: [...]
[If at any time the Valuation Percentage assigned to an item of Eligible Credit Support (VM) with respect to a party (as the Transferor) under this Annex is greater than the maximum permitted valuation percentage (prescribed or implied) for such item of collateral under any law requiring the collection of variation margin applicable to the other party (as the Transferee), then the Valuation Percentage with respect to such item of Eligible Credit Support (VM) and such party will be such maximum permitted valuation percentage.]
(B) “FX Haircut Percentage” means, with respect to each party (as the Transferor) and item of Eligible Credit Support (VM), [[8%], unless the Eligible Credit Support (VM) or Equivalent Credit Support (VM) is in the form of cash [in a Major Currency] or is denominated in a currency that matches [an Eligible Currency], in which case the FX Haircut Percentage will be 0%.]
[As used above, “Major Currency” means any of: (1) United States Dollar; (2) Canadian Dollar; (3) Euro; (4) United Kingdom Pound; (5) Japanese Yen; (6) Swiss Franc; (7) New Zealand Dollar; (8) Australian Dollar; (9) Swedish Kronor; (10) Danish Kroner; (11) Norwegian Krone or any other currency specified below: [...]
11(b)(vi) Thresholds.
(A) “Minimum Transfer Amount” means with respect to Party A: [...]
Minimum Transfer Amount” means with respect to Party B: [...]
(B) Rounding: The Delivery Amount (VM) and the Return Amount (VM) will be rounded up and down respectively to the nearest integral multiple of [...]
11(c)(vii) Transfers. “Regular Settlement Day” has the meaning specified in Paragraph 10, unless otherwise specified here: [...]

Template:ISDA English Law Credit Support Annex 2016 11(d) Template:ISDA English Law Credit Support Annex 2016 11(e) 11(f) Dispute Resolution.

11(f)(i)Resolution Time” means 1:00 p.m., London time, on the Local Business Day following the date on which the notice is given that gives rise to a dispute under Paragraph 4, unless otherwise specified here: ...
11(f)(ii) Value. For the purpose of Paragraphs 4(a)(4)(i)(C) and 4(a)(4)(ii), the Value of the outstanding Credit Support Balance (VM) or of any transfer of Eligible Credit Support (VM) or Equivalent Credit Support (VM), as the case may be, will be calculated as follows: ...
11(f)(iii) Alternative. The provisions of Paragraph 4 will apply, unless an alternative dispute resolution procedure is specified here: ...

11(g) Distributions and Interest Amount (VM)

(i) Interest Rate (VM). The “Interest Rate (VM)” in relation to each Eligible Currency specified above will be [SPECIFY].
(ii) Transfer of Interest Payment (VM) or application of Interest Amount (VM).
Interest Transfer: [Applies/does not apply].
Interest Payment Netting: [Applies/does not apply].
Interest Adjustment: [Applies/does not apply].
For the purposes of Paragraph 5(c)(ii)(B), the Credit Support Balance (VM) will be adjusted by the Transferee on or prior to the third Local Business Day of the following calendar month.
(iii) Other Interest Elections.
Negative Interest: [Applies/does not apply].
Daily Interest Compounding: [Applies/does not apply].
(iv) Alternative to Interest Amount (VM). The provisions of Paragraph 5(c)(ii) will apply.

Template:ISDA English Law Credit Support Annex 2016 11(h) Template:ISDA English Law Credit Support Annex 2016 11(i) Template:ISDA English Law Credit Support Annex 2016 11(j)

Template:ISDA English Law Credit Support Annex 2016 11(k)


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Content and comparisons

The bit you fill out in a your credit support annex to make it work. It is all in a rather sacred, standardised format, which differs marginally through the different versions of the CSA. Some of the stuff relates to Base Currency, and each other Eligible Currency and so on (or just Base Currency, if you are on the 1994 New York law CSA), Eligible Credit Support, Thresholds, Minimum Transfer Amounts and so on.

Some of it gets a little more elaborate later on, but generally speaking it isn’t anything like as gruesome or torturously negotiated as the Schedule to the ISDA Master Agreement.

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Summary

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See also

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References