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Default - CSA Provision (view source)

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{{csaanat|6|1995}}
{{csaanat|6|1995}}
{{Csa default capsule|csa}}
{{Csa default capsule|csa}}
===Why {{isdaprov|Unpaid Amount}}s and not {{isdaprov|Close-out Amount}}s?===
The {{csa}} is technically a {{isdaprov|Transaction}} under the {{isdama}} in its own right — that is deep [[ISDA]] lore — but it is still a ''weird'' {{isdaprov|Transaction}}, and the standard “[[replacement cost]]” method of valuation doesn’t work brilliantly: rather than having defined payments upfront, each of which can be valued and discounted back to now to reveal a [[present value]], payment obligations under a {{csa}} depend on the future performance of the ''other'' {{isdaprov|Transaction}}s in the portfolio under your {{isdama}}. So good luck determining the replacement value of something like that.
But the good news is you don’t have to: the {{csaprov|Credit Support Balance}} isn’t calculated by reference to its own discounted future cashflows: rather, it is just the inverse of the aggregate present value of all the other Transactions under the ISDA. So the “replacement cost” on any day is just the prevailing value of the {{csaprov|Credit Support Balance}}. It is therefore easier to treat that as an {{isdaprov|Unpaid Amount}} (none of this tedious mucking about with replacement costs and so on). But that means you have to deem the {{isdaprov|Close-Out Amount}}<ref>Or {{isdaprov|Market Quotation}}/{{isdaprov|Loss}}, if under a {{1992ma}}.Spoddy point: the definition of {{isdaprov|Loss}} in the {{1992ma}} ''includes'' the “Unpaid Amount” concept in the definition: “{{isdaprov|Loss}} includes losses and costs (or gains) in respect of any payment or delivery required to have been made (assuming satisfaction of each applicable condition precedent) on or before the relevant {{isdaprov|Early Termination Date}} and not made...”  </ref> as zero.
===Including “comprehensive” {{isdaprov|Termination Event}}s===
===Including “comprehensive” {{isdaprov|Termination Event}}s===
Consider expanding of the {{csaprov|Default}} provision under Paragraph {{csaprov|6}} of the {{tag|CSA}} to include “{{isdaprov|Termination Event}}s where all {{isdaprov|Transactions}} are {{isdaprov|Affected Transaction}}s”. This is as per Section 3.2 of the 2001 ISDA Margin Provisions which recommend that Paragraph {{csaprov|6}} of the {{tag|CSA}} should apply where all {{isdaprov|Transactions}} are closed out following an {{isdaprov|Event of Default}} or “Specified Condition” — the latter of which is defined to include the {{isdaprov|Termination Events}} listed under the {{isdama}}.  It is likely that all {{isdaprov|Transaction}}s would be {{isdaprov|Affected Transactions}} should a {{isdaprov|Credit Event Upon Merger}} or {{isdaprov|Additional Termination Event}} occur.
Consider expanding of the {{csaprov|Default}} provision under Paragraph {{csaprov|6}} of the {{tag|CSA}} to include “{{isdaprov|Termination Event}}s where all {{isdaprov|Transactions}} are {{isdaprov|Affected Transaction}}s”. This is as per Section 3.2 of the 2001 ISDA Margin Provisions which recommend that Paragraph {{csaprov|6}} of the {{tag|CSA}} should apply where all {{isdaprov|Transactions}} are closed out following an {{isdaprov|Event of Default}} or “Specified Condition” — the latter of which is defined to include the {{isdaprov|Termination Events}} listed under the {{isdama}}.  It is likely that all {{isdaprov|Transaction}}s would be {{isdaprov|Affected Transactions}} should a {{isdaprov|Credit Event Upon Merger}} or {{isdaprov|Additional Termination Event}} occur.
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