Return Amount - CSA Provision

ISDA 1995 English Law Credit Support Annex Go Premium In a Nutshell™ Section 2(b): 2(b) Return Amount. If the Transferor demands a Return Amount at least equalling the Transferee’s Minimum Transfer Amount on a Valuation Date, the Transferee must transfer the specified Equivalent Credit Support with a Value of the Return Amount (rounded under Paragraph 11(b)(iii)(D)) to the Transferee and the Credit Support Balance will be proportionately reduced. The “Return Amount” is the amount by which (i) the Value of the Transferor’s Credit Support Balance (adjusted for pending but unsettled transfers) exceeds: (ii) the Credit Support Amount. view template 1995 CSA full text of Section 2(b): 2(b) Return Amount. Subject to Paragraphs 3 and 4, upon a demand made by the Transferor on or promptly following a Valuation Date, if the Return Amount for that Valuation Date equals or exceeds the Transferee’s Minimum Transfer Amount, then the Transferee will transfer to the Transferor Equivalent Credit Support specified by the Transferor in that demand having a Value as of the date of transfer as close as practicable to the applicable Return Amount (rounded pursuant to Paragraph 11(b)(iii)(D)) and the Credit Support Balance will, upon such transfer, be reduced accordingly. Unless otherwise specified in Paragraph 11(b), the “Return Amount” applicable to the Transferee for any Valuation Date will equal the amount by which: (i) the Value as of that Valuation Date of the Transferor’s Credit Support Balance (adjusted to include any prior Delivery Amount and to exclude any prior Return Amount, the transfer of which, in either case, has not yet been completed and for which the relevant Settlement Day falls on or after such Valuation Date) exceeds (ii) the Credit Support Amount. view template Related Agreements Click here for the text of Section 2(b) in the 1995 English Law CSA Click here for the text of Section 2(b) 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 1995 CSA and 2016 VM CSA: click for comparison {{nycsadiff {{{3}}}}} Resources Full wikitext | Nutshell wikitext Navigation 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) Index: Click ᐅ to expand: 1995 CSA Comments? Questions? Suggestions? Requests? Insults? We’d love to 📧 hear from you. Sign up for our newsletter.

Calculating Delivery Amounts and Return Amounts

Differences between 1995 CSA and 2016 VM CSA

Note that under a 2016 VM CSA there is no Independent Amount or Threshold, so there is no need for a Credit Support Amount (which is Exposure adjusted by applicable Independent Amounts and Thresholds) — everything keys off the plain old Exposure.

Unless, that is, you have retrofitted your 2016 VM CSA to include Independent Amounts. The below assumes you have done that. Because some genius in your credit department will have decided this is really important. If you haven’t, it is a bit easier: just substitute “Credit Support Amount” for “Exposure”. For more on this stimulating topic, see Credit Support Amount (VM/IA).

Delivery Amounts

First: work out your Credit Support Amount. This is:

Transferee’s Exposure + Net Independent Amounts (IF ANY)

Second: calculate the Value of the Transferor’s Credit Support Balance. This is basically the prevailing value of the Eligible Credit Support (and income on it) that the Transferor has ponied up at that time.
Third: Deduct the Credit Support Balance from the Credit Support Amount. Fourth: If the difference from the sum you did in (3):

is less than zero, KEEP QUIET. If you are lucky, the other guy won’t ask you for a Return Amount.

is more than zero but less than the Minimum Transfer Amount, also KEEP QUIET. No Delivery Amount for you today, because you haven’t exceeded the Minimum Transfer Amount, so you are not entitled to one.

is more than the Minimum Transfer Amount you can demand the whole amount (I.e., not just the bit over the MTA).

Return Amounts

Basically the converse of a Delivery Amount. In this case you deduct the Credit Support Amount from the Credit Support Balance.

What about in-flight Credit Support deliveries?

So yesterday you met a margin call by delivering a bond the standard settlement cycle for which means it won’t arrive till the day after tomorrow. How is this “in-flight collateral” treated for today’s margin call?

It’s treated as if you have already made it. This is the significance of the parenthetical:

“(adjusted to include any prior Delivery Amount and to exclude any prior Return Amount, the transfer of which, in either case, has not yet been completed and for which the relevant Settlement Day falls on or after such Valuation Date).”

However, if your counterparty fails in the meantime (before the bond has settled, and assuming ultimately it never does), it would count as an Unpaid Amount which would factor into your close-out calculation.

At first, this seems odd, but the risk is a time value risk associated with the collateral, not a counterparty risk per se. You accepted it when you agreed to Eligible Credit Support with a long settlement cycle in the first place. If you don’t want that time-value risk, don’t agree to collateral with a long settlement cycle.

Picturesque speech

Bonus learning for free: In arithmetic, a sum being subtracted is the “subtrahend” and the sum it is being subtracted from is the “minuend”.

CSA transfer timings

This is how the timing works for CSA transfers.

Terminology check: to make this easy, we refer to both 1995 CSAs and 1995 CSAs as “1995 CSAs”. This cuts out a lot of “Delivery Amount and/or Return Amount as the case may be” nonsense. The date on which someone demands a 1995 CSA we call a “1995 CSA”.

To be clear, neither Demand Date nor 1995 CSA are “ISDA canon”.

Remember the 1995 CSA is simply the person making the demand.

1. Value 1995 CSA and 1995 CSA: Firstly, value what you are going to call: the 1995 CSA under para 1995 CSA or 1995 CSA. This is roughly 1995 CSA - 1995 CSA (or vice versa).
   1. Under 1995 CSA, the 1995 CSA will transfer 1995 CSA having a 1995 CSA as of the date of transfer of the 1995 CSA.
   2. Per the 1995 CSA provision, all calculations happen at the 1995 CSA. Fluctuations in value after that time won’t invalidate the 1995 CSA, but they may mean a party can immediately call for more 1995 CSA (that is, have another 1995 CSA).
   3. The 1995 CSA keys off the 1995 CSA.
2. 1995 CSA: On or promptly following any 1995 CSA (it need not be a 1995 CSA) on which the 1995 CSA has moved in its favour, one party may demand a 1995 CSA (para 2(a)) or a 1995 CSA (para 2(b)).
3. 1995 CSA: Under para 1995 CSA (1995 CSA) if the demand is received before the 1995 CSA on a 1995 CSA that is a 1995 CSA the transfer must be made by close of business on the related Regular Settlement Day. If received after the 1995 CSA or on a non-1995 CSA, the transfer must be made by close of business on the Regular Settlement Day relating to the day after the Demand Date.
4. Settlement Day: Here is where things differ materially between the 1995 CSA and the 2016 VM CSA.
   1. 1995 CSA: The Settlement Day for any day (whether or not it is a 1995 CSA) is:
      1. Cash: for cash, the next 1995 CSA and,
      2. Securities: for securities, the 1995 CSA after the date on which a trade in the relevant security, if effected on the day in question, would have been settled in accordance with customary practice.
   2. 2016 VM CSA: In the new world we have the new concept of the Regular Settlement Day, and this is the same Local Business Day as the Demand Date. The run-off text at the end of Paragraph 3(a) gives you a little more flex: if the demand came after the Notification Time, then you must make the transfer by close on the Regular Settlement Day for the next day. Just how the business days interact under the ISDA and CSA is about as complicated as string theory, by the way. For a cheat’s guide, see How business days work under the CSA. You’re welcome!