Eligible Collateral (VM) - NY VM CSA Provision

2016 ISDA Credit Support Annex (VM) (New York law) A Jolly Contrarian owner’s manual™ Eligible Collateral (VM) 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. Eligible Collateral (VM) in all its glory “Eligible Collateral (VM)” has the meaning specified in Paragraph 13. edit Resources and Navigation Resources Wikitext | Nutshell wikitext Navigation 1 (Interpretation) | 2 (Security Interest) | 3 (Credit Support Obligations) | 4 ( Conditions Precedent, Transfer Timing, Calculations and Substitutions) | 5 (Dispute Resolution) | 6 (Holding and Using Posted Collateral (VM)) | 7 (Events of Default) | 8 (Certain Rights and Remedies) | 9 (Representations) | 10 (Expenses) | 11 (Miscellaneous) | 12 (Definitions) | 13 (Elections and Variables) Index: Click ᐅ to expand: 2016 NY VM CSA Premium version of this page

Overview

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Compare with “Eligible Credit Support” under the 2016 VM CSA.

Summary

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The kinds of collateral that you may exchange under a 2016 NY Law VM CSA. It looks like you can choose what you like, right, but CFTC rules in practice restrict it to cash in certain currencies. This is broadly analogous to what happens in Europe under EMIR and the other major regulatory regimes imposing margin requirements. You may wonder why regulatory VM is cash and regulatory IM is not, and premium subscribers can find out.

Initial margin

For reasons best known to themselves there are curious rules in the US relating to initial margin which lead counterparties to use different ISDA CSA forms on different occasions. The details and variegation at play here — are you an SBSD counterparty? Are you subject to EMIR too? Is the AANA threshold met? — are all too ghastly for the JC to presently get into, other than to say the tiny peripheral benefits you get from gaming the fractal edges of the system of rules are most likely not worth it and it is probably better to have a single, maximally conservative, theory of the game: all that being well and good, of course, if your counterparties have a different view of the world, or a different idea what is the maximally conservative theory of the game.

This is what happens if you try to standardise and centralise a market that was designed to be unstandardised and decentralised, but still.

The dark side of margin

On the subject of pained exegeses which no-one will heed, the JC also has an impassioned essay about why bilateral variation margin may have a destabilising effect on the broader financial system, potentially weakening swap dealers’ liquidity and risk positions — a risk which was admirably demonstrated during the Archegos fiasco.

But no-one listens to the JC, so you should treat this as extended universe fan fiction only.

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 👇

• The JC’s famous Nutshell™ summary of this clause
• CFTC rules on eligiblity of collateral
• “Major currencies”, including a gratuitous dig at flightless birds
• Why reg VM is always “cashy” but reg IM is always uncashy.

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See also

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• Latham’s heroic yet, at the same time, faintly horrifying tabular comparison of US and UK margin rules.
• Katten’s equally distressing Initial Guidance fpr US Swap End Users which will surely have you clawing at your eyeballs even if Latham’s hasn’t already
• Our own house view: When variation margin attacks
• Archegos