Exchanges - CSA Provision
1995 ISDA Credit Support Annex (English Law)
Paragraph 3(c) in full
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Comparison note: But for the tedious scattering of “VM” all over the place — and one different cross reference (11(d) to 11(e) where a customised Exchange Date might be defined), the 2016 English law VM CSA version is identical to the 1995 ISDA CSA version. Because it was perfect first time.
Note here the Transferor can ask for an exchange, but the Transferee is not obliged to accept it. This is a fundamental provision of “title transfer”: once the Eligible Credit Support is delivered under a title-transfer 1995 English Law CSA, the Transferee owns it absolutely. It only has to return Equivalent Credit Support. This is a special, legal ninja use of the word “equivalent”. It means “fungible”; exactly the same as ~; not “broadly similar to ~”.
This is important also from a pricing (and operational) perspective: otherwise the Transferor would have a “worst-of” option and would be entitled to continually switch into the "cheapest to deliver" of the Eligible Credit Support. Needless to say, the increased collateral flows would also increase the operational burden.
Return Amounts: A Transferee does have a (limited) option in terms of selecting the Return Amount should there be a requirement to return posted credit support: it can select the cheapest to deliver of all the Eligible Credit Support that has been posted to it which currently comprises its Credit Support Balance.