Equivalent Credit Support - CSA Provision: Difference between revisions

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 If you had to redeliver the same one, the “transfer of title” is in danger of being [[recharacterised]] into a [[pledge]]/[[loan]], which has a bunch of unwanted knock-on effects.
-I have come across a couple of instances (in {{tag|OTC Clearing}}/{{tag|CCP}} space) where the {{tag|CSA}} definition of “{{csaprov|Equivalent Credit Support}}” has been modified to capture not just fungible securities of the same Series/[[ISIN]], but “similar ones” – same issuer but different maturity, and under a different ISIN etc.
+You may come across a couple of instances (in {{tag|OTC Clearing}}/{{tag|CCP}} space) where the {{tag|CSA}} definition of “{{csaprov|Equivalent Credit Support}}” has been modified to capture not just [[fungible]] securities of the same Series/[[ISIN]], but “similar ones” – same issuer but different maturity, and under a different ISIN etc. This is likely to have arisen by way of misapprehension fromthat “{{csaprov|Equivalent Credit Support}}” is already intended to allow redelivery of ''non''-[[fungible]] securities of a similar type, and the modification is only clarificatory. The [[Broker-dealer|broker’s]] funding desk may say, “yeah but what if there’s some illiquidity in the market?” but — well, friend, you have that exact risk across your entire ISDA book, so you’re already long that risk. In practice, if there is a market disruption and you can’t get hold of the necessary collateral, as long as it isn’t coterminous with your own credit deterioration, you should be able to hash it out.
-This may have been based on a misapprehension that “{{csaprov|Equivalent Credit Support}}” is already intended to allow redelivery of ''non''-[[fungible]] securities of a similar type, and the modification is only clarificatory.
+And if you are worried about it, go for a cashonly CSA, or just don’t reuse that asset.
-There may be a need for the “''similar'' securities” concept in the [[OTC to CCP]] space, but we should call it something else – perhaps “Similar Credit Support” – to differentiate it from “{{csaprov|Equivalent Credit Support}}” which is still needed in the CSA to support the title transfer analysis.
+Once so explained the funding team generally settles down.
+Now there may be a need for the “''similar'' securities” concept in the [[OTC to CCP]] space, doubtful, but let’s say — but we should call it something else – perhaps “Similar Credit Support” – to differentiate it from “{{csaprov|Equivalent Credit Support}}” which is still needed in the CSA to support the title transfer analysis.