Representations - IM CSD Provision
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2018 ISDA Credit Support Deed (IM) (English law)
A Jolly Contrarian owner’s manual™ Representations in a Nutshell™ Original text:
Resources and Navigation
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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
- Background reading and long-form essays
- Some weird speculation about springing liens