Difference between revisions of "Exposure - NY VM CSA Provision"

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Revision as of 09:28, 16 January 2020


In a NutshellTM Section Template:Exposurenycsaprov:

Template:Nutshell Exposure NY CSA Exposure view template

Template:Exposurenycsa full text of Section Template:Exposurenycsaprov:

Template:ISDA New York Law Credit Support Annex Exposure Exposure view template

Related Agreements
Click [[Exposure - Template:NotExposureNY CSA Provision|here]] for the text of Section Template:NotExposurenycsaprov in the [[Template:NotExposure NY CSA Anatomy|Template:NotExposure New York law CSA]]
Click [[{{{3}}} - CSA Provision|here]] for the text of Section [[{{{3}}} - CSA Provision|{{{3}}}]] in the 1995 English Law CSA
Click [[{{{3}}} - VM CSA Provision|here]] for the text of Section [[{{{3}}} - VM CSA Provision|{{{3}}}]] in the 2016 English Law VM CSA
Template:2nycsadiff Exposure
2016 English law VM CSA and 2016 NY Law VM CSA: click for comparison
{{csadiff {{{3}}}}}

Template:Anatresources-Exposurenycsa Template:Anatnavigation-Exposurenycsa

Differences between CSA versions

Template:Nycsa capsule Exposure===Differences between versions=== The difference between the two versions of English law CSA (see link in box for comparison) is that the 1995 English Law CSA assumes you are trading under a 1992 ISDA, using the Market Quotation valuation technique — which kind of figures, since the 2002 ISDA with its Close-out Amount methodology hadn’t then been invented — whereas the 2016 English law VM CSA version contemplates you having a either a 1992 ISDA or a 2002 ISDA and provides for them in the alternative.

The 2016 NY Law VM CSA tracks the 2016 English law VM CSA closely with two curious exceptions: Firstly, when imagining its hypothetical termination of all Transactions it doesn’t explicitly carve out the Transaction constituted by the 2016 NY Law VM CSA itself — which is odd, because if you were treating it as a Transaction to be hypothetically included, you necessarily get a value of zero, since its value should be the exact negative of whatever the net mark-to-market value of all the other Transactions are — and secondly it does not hypothetically suppose that the Secured Party is the Unaffected Party, thereby getting to be in the driver’s seat when constructing the necessary valuations.

The reason for you don’t have to except a 2016 NY Law VM CSA from hypothetical termination is buried deep in its earthen ontological root system. Are you ready?

Profound onotological differences

Unlike a title transfer English law CSA which is expressed to be a Transaction under the ISDA Master Agreement, the 2016 NY Law VM CSA is not: it is instead a “Credit Support Document”: a standalone collateral arrangement that stands aloof and apart from the ISDA Master Agreement and all its little diabolical Transactions. The reason for this is — spoiler: it’s not a very good one — because while a English law CSA, by being a title transfer collateral arrangement, necessarily reverses the indebtedness between the parties outright, an 2016 NY Law VM CSA (and, for that matter, an English law English law CSD) does not: it only provides a security interest. The in-the-money counterparty is still in-the-money. It is just secured for that exposure. The outright exposure between the parties does not change as a result of the pledge of credit support.

This is magical, bamboozling stuff — deep ISDA lore — and, at least where rehypothecation is allowed under Paragraph 6(c) of a 2016 NY Law VM CSA — it pretty much always is — it serves no real purpose, because even though you say you are only pledging the collateral, in the the greasy light of commercial reality, from the moment the Secured Party rehypothecates your pledged assets away into the market, dear Pledgor you have transferred your title outright. <ref>