Legally Ineligible Credit Support (VM) - NY VM CSA Provision

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In a Nutshell Section 11(g):

Template:Nutshell 2016 NY CSA 11(g) view template

2016 NY VM CSA full text of Section 11(g):

11(g) Legally Ineligible Credit Support (VM). Unless otherwise specified in Paragraph 13, upon delivery of a Legal Ineligibility Notice by a party, each item of Eligible Credit Support (VM) (or a specified amount of such item) identified in such notice

(i) will cease to be Eligible Credit Support (VM) for purposes of Transfers to such party as the Secured Party hereunder as of the applicable Transfer Ineligibility Date,
(ii) will cease to be Eligible Credit Support (VM) for the other party as the Pledgor for all purposes hereunder as of the Total Ineligibility Date and
(iii) will have a Value of zero on and from the Total Ineligibility Date.

Legal Ineligibility Notice” means a written notice from the Secured Party to the Pledgor in which the Secured Party

(i) represents that the Secured Party has determined that one or more items of Eligible Credit Support (VM) (or a specified amount of any such item) either has ceased to satisfy, or as of a specified date will cease to satisfy, collateral eligibility requirements under law applicable to the Secured Party requiring the collection of variation margin (the “Legal Eligibility Requirements”),
(ii) lists the item(s) of Eligible Credit Support (VM) (and, if applicable, the specified amount) that have ceased to satisfy, or as of a specified date will cease to satisfy, the Legal Eligibility Requirements,
(iii) describes the reason(s) why such item(s) of Eligible Credit Support (VM) (or the specified amount thereof) have ceased to satisfy, or will cease to satisfy, the Legal Eligibility Requirements and
(iv) specifies the Total Ineligibility Date and, if different, the Transfer Ineligibility Date.

Total Ineligibility Date” means the date on which the relevant item of Eligible Credit Support (VM) (or a specified amount of such item) has ceased to satisfy, or will cease to satisfy, the Legal Eligibility Requirements applicable to the Secured Party for all purposes hereunder; provided that, unless otherwise specified in Paragraph 13, if such date is earlier than the fifth Local Business Day following the date on which the Legal Ineligibility Notice is delivered, the Total Ineligibility Date will be the fifth Local Business Day following the date of such delivery.
Transfer Ineligibility Date” means the date on which the relevant item of Eligible Credit Support (VM) (or a specified amount of such item) has ceased to satisfy, or will cease to satisfy, the Legal Eligibility Requirements for purposes of Transfers to the Secured Party hereunder; provided that, unless otherwise specified in Paragraph 13, if such date is earlier than the fifth Local Business Day following the date on which the Legal Ineligibility Notice is delivered, the Transfer Ineligibility Date will be the fifth Local Business Day following the date of such delivery.
view template

Related Agreements
Click here for the text of Section 11(g) in the 1994 New York law CSA
Click here for the text of Section 9(e) in the 1995 English Law CSA
Click here for the text of Section 9(e) in the 2016 English Law VM CSA
Comparisons
Template:2nycsadiff 11(g)
2016 VM CSA and 2016 NY Law VM CSA: click for comparison
There is no equivalent to Paragraph 9(e) in the 1995 CSA.


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Differences between CSA versions

Template:Nycsa capsule 11(g)

No such concept in the 1995 CSA or the 1994 NY CSA

Concerning as it does legal and not contractual ineligibility of credit support, and that being a function of criteria imposed by regulators on one’s mandatory obligations to post and collect margin, which did not exist before 2016, it is hardly surprising ISDA’s crack drafting squad™ of yore didn’t anticipate the need for this clause, which is convoluted, finnicky, and you can avoid the need for it entirely, should you post cash in a sensible currency.

Difference between 2016 VM CSA and 2016 NY Law VM CSA

In most respects they are identical (with references to “Transferor” and “Transferee” switched to “Pledgor” and “Secured Party”). There are two technical differences, for completists:

  1. Ahem rehypothecation folks.