Interpretation - IM CSD Provision

2018 ISDA Credit Support Deed (IM) (English law) A Jolly Contrarian owner’s manual™ Go premium Crosscheck: For corresponding provisions in other CSAs see the table 👇 1 in a Nutshell™ The JC’s Nutshell™ summary of this term has moved uptown to the subscription-only ninja tier. For the cost of ½ a weekly 🍺 you can get it here. Sign up at Substack. Original text: edit Paragraph 1. Interpretation 1(a) Definitions and Inconsistency. Unless otherwise defined in this Deed, capitalised terms defined in the Agreement have the same meanings in this Deed. Capitalised terms not otherwise defined in this Deed or in the Agreement have the meanings specified pursuant to Paragraph 12, and all references in this Deed to Paragraphs are to Paragraphs of this Deed. In the event of any inconsistency between this Deed and the provisions of the Agreement or any Other CSA, this Deed will prevail in the case of (i) matters concerning regulatory initial margin requirements relating to Covered Transactions (IM) posted by a Chargor and (ii) specific amendments made herein to the Agreement, the Schedule to the Agreement or any Other CSA, and in the event of any inconsistency between Paragraph 13 and the other provisions of this Deed, Paragraph 13 will prevail. 1(b) Secured Party and Chargor. Unless otherwise specified in Paragraph 13, all references in this Deed to the “Secured Party” will be to either party when acting in that capacity and all corresponding references to the “Chargor” will be to the other party when acting in that capacity, provided, however, that a reference herein to Posted Credit Support (IM) being “held” by a Secured Party at any time shall be construed as a reference to the Posted Credit Support (IM) credited to the Segregated Accounts at such time in respect of which a Security Interest has been created in its favour under this Deed. A reference to a transfer of Eligible Credit Support (IM) or Posted Credit Support (IM) to or from the Custodian (IM) is deemed to be a reference to a transfer to or from the relevant Segregated Accounts, as applicable. 1(c) Scope of this Deed. The only Transactions which will be relevant for the purposes of determining a “Margin Amount (IM)” under this Deed with respect to a posting obligation of a Chargor will be the relevant Covered Transactions (IM) specified in accordance with the provisions of Paragraph 13. Except as expressly provided herein, nothing in this Deed will affect the rights and obligations, if any, of either party under the Agreement or any Other CSA. 1(d) Amendment Effective Date (IM). Unless otherwise specified in Paragraph 13, any specific amendments made herein to the Agreement, including the Schedule or any Other CSA, will become effective as of the Amendment Effective Date (IM). The varieties of ISDA CSA Subject 1994 NY 1995 Eng 2016 VM NY 2016 VM Eng 2018 IM Eng Preamble Pre Pre Pre Pre Pre Interpretation 1 1 1 1 1 Security Interest 2 - 2 - 2 Credit Support Obligations 3 2 3 2 3 Transfers, Calculations and Exchanges - 3 - 3 - Conditions Precedent, Transfer Timing, Calculations and Substitutions 4 - 4 - 4 Dispute Resolution 5 4 5 4 5 Holding and Using Posted Collateral 6 - 6 - 6 Transfer of Title, No Security Interest - 5 - 5 - Events of Default 7 6 7 6 7 Rights and Remedies 8 - 8 - 7 Representations 9 7 9 7 9 Expenses 10 8 10 8 10 Miscellaneous 11 9 11 9 11 Definitions 12 10 12 10 12 Elections and Variables 13 11 13 11 13 Resources and Navigation Index: Click ᐅ to expand: 1994 NY CSA 1995 CSA 2016 VM CSA

Overview

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Between the OG and VM versions: 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.

Between English law and New York law: The New York version also has a Para 1(b) explain what the reference to Secured Parties is all about, which are not germane to the title transfer-style English law versions of the Annex.

VM versus IM: The 2018 English law IM CSD is, unusually for an English law document, a security interest arrangement which does not count as a Transaction. To clarity in the Interpretation section as to all of this.

Summary

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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.

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• JC’s “nutshell” summary of the clause
• Background reading and long-form essays

See also

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