Representation - CSA Provision

ISDA 1995 English Law Credit Support Annex A Jolly Contrarian owner’s manual™ Go premium Overview — Summary — Premium — See also — Wikitext Crosscheck: →NY OG →Eng OG →NY VM →EngVM →Eng IM Representations 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: Paragraph 7. Representation Each party represents to the other party (which representation will be deemed to be repeated as of each date on which it transfers Eligible Credit Support, Equivalent Credit Support or Equivalent Distributions) that it is the sole owner of or otherwise has the right to transfer all Eligible Credit Support, Equivalent Credit Support or Equivalent Distributions it transfers to the other party under this Annex, free and clear of any security interest, lien, encumbrance or other restriction (other than a lien routinely imposed on all securities in a relevant clearance system). 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 - 8 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

title transfer CSAs: But for the “(VM)s”, identical between the 1995 CSA and 2016 VM CSA, as per this comparison.

security interest CSAs: But for the “(VM)s”, identical between the 1995 CSA and 2016 VM CSA, as per this comparison

security interest CSA v title transfer CSA: More involved reps for the security interest CSA on account of the fact that the Pledgor retains title, as per this comparison.

Summary

Fewer representations for title transfer CSAs

Seeing as what is going on in a title transfer CSA is a bit plainer, and less in thrall to the deep magic of contractual law, one needs make less of a formal fuss when going about it. If I am giving you something outright, all you really need to know from me is that it is mine to give — and even that in these times of dematerialised securities, the Financial Collateral Directive and so on, is not so fraught as once it might have been. All the recipient really needs to establish is enough plausible deniability to be a bona fide recipient for value without notice.

When I am giving you possession and an equitable interest in something I retain legal ownership of, there are more things that can go wrong, so I need a few more representations: that you can grant security, that you have granted security, that the security works, and that no-one else has a security interest that might interfere with it. Of course, all this is moot the moment you rehypothecate the asset, but let’s not let that ruin a good story.

Clearing system liens

In these modern, dematerialised times, the securities in a clearing system — that is, pretty much all securities — exist only as entries in a ledger maintained by the clearing system. The individual securities are no longer — have not for decades been — security-printed, physical things. (See common depositary for more about this: it is a topic that thrills a certain type and drives others to distraction.)

In any case, like all good intermediaries, the clearing system gets fees from participants for being a clearing system. To guard against non-payment of these fees, it keeps a lien on all global securities it holds. Would it — could it — ever exercise that lien, given that the securities only exist as a practical thing inside its own accounts, and cannot really therefore be taken out of them? Doubtful. In practice, it will just deduct its fees out of any sale proceeds of securities sales flowing into your account (Cash movements all take place inside its systems too, needless to say.)

Now all this sits a long way down the stack of turtles that makes up the modern metaphysical financial system — almost so deep as to be beyond the paranoid articulations of an ISDA ninja — but, as you can see, not quite.

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• JC’s “nutshell” summary of the clause
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See also

• Representations and warranties
• Negligent misstatement