Exchanges - CSA Provision

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1995 ISDA Credit Support Annex (English Law)
A Jolly Contrarian owner’s manual

Paragraph 3(c) in a Nutshell
Use at your own risk, campers!

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Paragraph 3(c) in full

3(c) Exchanges.

3(c)(i) Unless otherwise specified in Paragraph 11, the Transferor may on any Local Business Day by notice inform the Transferee that it wishes to transfer to the Transferee Eligible Credit Support specified in that notice (the “New Credit Support”) in exchange for certain Eligible Credit Support (the “Original Credit Support”) specified in that notice comprised in the Transferor’s Credit Support Balance.
3(c)(ii) If the Transferee notifies the Transferor that it has consented to the proposed exchange, (A) the Transferor will be obliged to transfer the New Credit Support to the Transferee on the firstSettlement Day following the date on which it receives notice (which may be oral telephonic notice) from the Transferee of its consent and (B) the Transferee will be obliged to transfer to the Transferor Equivalent Credit Support in respect of the Original Credit Support not later than the Settlement Day following the date on which the Transferee receives the New Credit Support, unless otherwise specified in Paragraph 11(d) (the “Exchange Date”); provided that the Transferee will only be obliged to transfer Equivalent Credit Support with a Value as of the date of transfer as close as practicable to, but in any event not more than, the Value of the New Credit Support as of that date.

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Related agreements and comparisons

Related Agreements
Click here for the text of Section 3(c) in the 2016 English Law VM CSA
Click here for the text of Section 3(c) in the 1994 New York law CSA
Click here for the text of Section 3(c) in the 2016 New York law CSA
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Resources and navigation

Resources Full wikitext | Nutshell wikitext
Navigation 1 (Interpretation) | 2 (Credit Support Obligations) | 3 (Transfers, Calculations and Exchanges) | 4 (Dispute Resolution) | 5 (Title Transfer etc) | 6 (Default) | 7 (Representation) | 8 (Expenses) | 9 (Miscellaneous) | 10 (Definitions) | 11 (Elections and Variables)

Index — Click the ᐅ to expand:

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Content and comparisons

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[1] 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.

Delivery Amounts: Contrast this with Delivery Amounts, where a Transferor has the option to deliver the cheapest of the Eligible Credit Support specified in the 1995 ISDA CSA.

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.




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See also

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  1. Oh, all right, and GMSLA ninja, Repo ninja and other kinds of ninjas too.