Difference between revisions of "Preamble - VM CSA Provision"

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Revision as of 09:13, 16 January 2020

2016 ISDA VM CSA Anatomy


In a NutshellTM Section preamble:

2016 Credit Support Annex for Variation Margin (VM)
dated as of ……………………….
to the Schedule to the ISDA Master Agreement
dated as of ...........................................................
between
........................................................ and ....................................................
(“Party A”) (“Party B”)


This Annex supplements the ISDA Master Agreement as part of its Schedule. It is the Confirmation for a Transaction comprising the credit support arrangements under it.
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2016 ISDA VM CSA full text of Section preamble:

2016 Credit Support Annex for Variation Margin (VM)
dated as of ……………………….
to the Schedule to the ISDA Master Agreement
dated as of ...........................................................
between
........................................................ and ....................................................
(“Party A”) (“Party B”)


This Annex supplements, forms part of, and is subject to, the ISDA Master Agreement referred to above and is part of its Schedule. For the purposes of this Agreement, including, without limitation, Sections 1(c), 2(a), 5 and 6, the credit support arrangements set out in this Annex constitute a Transaction (for which this Annex constitutes the Confirmation).
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Related Agreements
Click here for the text of Section preamble in the 1995 English Law CSA
Click here for the text of Section preamble in the 2016 English Law VM CSA
Click [[{{{3}}} - NY VM CSA Provision|here]] for the text of the equivalent, Section [[{{{3}}} - NY VM CSA Provision|{{{3}}}]] in the 2016 NY Law VM CSA
Comparisons
Template:Csadiff preamble
{{nycsadiff {{{3}}}}}
2016 English Law VM CSA Resources: Full wikitext | Nutshell wikitext
English Law | 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) |

Note that English law CSAs are Transactions and not Credit Support Documents under the ISDA Master Agreement, whereas the New York law CSAs and English law CSD are Credit Support Documents but not Transactions. Once you are up and running this won’t matter a jot, but if you are trying to get your poor dishevelled mind around this benighted agreement suite, it will surely do it in. But stick with it: your reward will be in heaven. Possibly.

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>