Interpretation - CSA Provision
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1995 ISDA Credit Support Annex (English Law)
Paragraph 1 in a Nutshell™ Use at your own risk, campers!
Full text of Paragraph 1
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Content and comparisons
Big change between 1995 and 2016 is the addition of Paragraph 1(b) in the 2016 VM CSA, rabbiting on about Other CSAs, Covered Transactions and so on.
Summary
A paragraph of unremarkable, if unnecessary, throat-clearing, the “definitions and inconsistency” clauses are largely the same across all versions of the CSA.
“Transfer”
With one exception: the English law versions, but not the New York law ones, are marred by a bizarre for the avoidance of doubt rider which is both a non sequitur — no one was talking about “transfers” here, much less was in any particular state of doubt about them — but also an own goal: rather than avoiding doubt, this rider does nothing quite so much as introduce it.
Wait: was I meant to be doubting something here? Should I have been confused? Have I missed something?
There is nothing a cheerful attorney likes more than to worry about things, and she will toss sleeplessly for nights on end, fully occupied by questions such as — is “delivery” of cash different from “payment” of it? Is there something legally significant about “payment” that I somehow missed, in Banking Law 302, in 1989?
Tell your legal eagles to relax. It won’t do any good, but you can tell them. To the best the JC can figure out, all this means is that a Transferor must physically part with its collateral, handing it bodily over to the Transferee.
There is an interesting question as to what this might mean if your counterparty is also your banker, and you direct it to transfer credit support into the bank account you maintain with it, meaning that legally the counterparty hasn’t done anything with the cash at all — not an unusual scenario, should you be a hedge fund and the counterparty your prime broker — but this will set your legal eagles off again, and we don’t want that. We are just getting started.
Nomenclature
Being an annex to an ISDA Master Agreement, references to the “Agreement” means that particular ISDA Master Agreement; the “Annex” is the credit support annex and, if you were pedantic enough that you really felt the need to refer to it, the “Schedule” is the schedule to the ISDA Master Agreement.