Template:CSA Transfer Description: Difference between revisions

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===Timing of transfers under a CSA===
====CSA transfer timings====
This is how the timing works for CSA transfers. Remember the {{{{{1}}}prov|Valuation Agent}} is simply the person making the demand. Terminology check: to make this easy we refer to both {{{{{1}}}prov|Delivery Amount}}s ''and'' {{{{{1}}}prov|Return Amount}}s as “'''{{{{{1}}}prov|Transfer Amount}}s'''”. The date on which someone actually demands a Transfer Amount we call a “'''{{{{{1}}}prov|Demand Date}}'''”.
This is how the timing works for CSA transfers.  


'''Valuation of {{{{{1}}}prov|Exposure}} and {{{{{1}}}prov|Credit Support Balance}}''': Firstly, you must value what you are going to call, which will be the Transfer Amount under para {{{{{1}}}prov|2(a)}} or {{{{{1}}}prov|2(b)}}. This is roughly {{{{{1}}}prov|Credit Support Balance}} - {{{{{1}}}prov|Exposure}} (or ''vice versa'').  
Terminology check: to make this easy, we refer to both {{{{{1}}}|Delivery Amount}}s ''and'' {{{{{1}}}|Return Amount}}s as “'''{{{{{1}}}|Transfer Amount}}s'''”. 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 {{{{{1}}}|Transfer Amount}} we call a “'''{{{{{1}}}|Demand Date}}'''”.  


Per para {{{{{1}}}prov|2(a)}} the {{{{{1}}}prov|Transferor}} will transfer {{{{{1}}}prov|Eligible Credit Support}} having a {{{{{1}}}prov|Value}} equal to the {{{{{1}}}prov|Transfer Amount}} ''as of the date of transfer''.  Under the {{{{{1}}}prov|Calculations}} provision all calculations happen at the relevant {{{{{1}}}prov|Valuation Time}}. Fluctuations in value after that time won’t invalidate the {{{{{1}}}prov|Transfer Amount}}, but they may mean a party can immediately call for more {{{{{1}}}prov|Credit Support}} (that is, have ''another'' {{{{{1}}}prov|Demand Date}}). The {{{{{1}}}prov|Valuation Time}} in turn keys off the {{{{{1}}}prov|Valuation Date}}.<ref>Under the {{csa}} you may specify either [[close of business]] on the {{csaprov|Valuation Date}} or the {{csaprov|Local Business Day}} immediately ''before'' it. Under the {{vmcsa}} you have flexibility to determine the {{vmcsaprov|Valuation Time}} as at the point you your book each day.</ref>
To be clear, neither Demand Date nor {{{{{1}}}|Transfer Amount}} are “ISDA canon”.


'''{{{{{1}}}prov|Demand Date}}''': On any date that is (or promptly follows) a {{{{{1}}}prov|Valuation Date}}<ref>It need not be a Local Business Day.</ref> in which the {{{{{1}}}prov|Exposure}} has moved in its favour, one party may demand a {{{{{1}}}prov|Delivery Amount}}<ref>Under para 2(a).</ref> or a {{{{{1}}}prov|Return Amount}}.<ref>Under para 2(b).</ref>  
Remember the {{{{{1}}}|Valuation Agent}} is simply the person making the demand.
{{L1}}
'''Value {{{{{1}}}|Exposure}} and {{{{{1}}}|Credit Support Balance}}''': Firstly, value what you are going to call: the {{{{{1}}}|Transfer Amount}} under para {{{{{1}}}|2(a)}} or {{{{{1}}}|2(b)}}. This is roughly ''{{{{{1}}}|Credit Support Balance}} - {{{{{1}}}|Exposure}}'' (or ''vice versa'').
{{L3}}
Under {{{{{1}}}|2(a)}}, the {{{{{1}}}|Transferor}} will transfer {{{{{1}}}|Eligible Credit Support}} having a {{{{{1}}}|Value}} ''as of the date of transfer'' of the {{{{{1}}}|Transfer Amount}}. <li>


'''{{{{{1}}}prov|Transfer Date}}''': Under para {{{{{1}}}prov|3(a)}} ({{{{{1}}}prov|Transfers}}) if the {{{{{1}}}prov|Demand Date}} is a {{{{{1}}}prov|Local Business Day}} and demand is received ''before'' the {{{{{1}}}prov|Notification Time}}, the transfer must be made not later than [[close of business]] on the related [[Regular Settlement Day - VM CSA Provision|''Regular'' Settlement Day]].<ref>The “{{csaprov|Settlement Day}}” under the {{csa}} is slightly different.</ref> If received ''after'' the {{{{{1}}}prov|Notification Time}} (or at any time on a non-{{{{{1}}}prov|Local Business Day}}), the transfer must be made by close of business on the {{vmcsaprov|Regular Settlement Day}} relating to the day<ref>Note: ''ordinary'' day, ''not'' Local Business Day</ref> ''after'' the Demand Date. <br>
Per the {{{{{1}}}|Calculations}} provision, all calculations happen at the {{{{{1}}}|Valuation Time}}. Fluctuations in value after that time won’t invalidate the {{{{{1}}}|Transfer Amount}}, but they may mean a party can immediately call for more {{{{{1}}}|Credit Support}} (that is, have ''another'' {{{{{1}}}|Demand Date}}). <li>


'''{{csaprov|Settlement Day}}''': Here is where things differ materially between the {{csa}} and the {{vmcsa}}.<br>
The {{{{{1}}}|Valuation Time}} keys off the {{{{{1}}}|Valuation Date}}.<ref>Under the {{csa}} you may specify either [[close of business]] on the {{csaprov|Valuation Date}} or the {{csaprov|Local Business Day}} immediately ''before'' it. Under the {{vmcsa}} you have flexibility to determine the {{vmcsaprov|Valuation Time}} as at the point you close your book each day.</ref></ol><li>
'''{{csa}}''': The {{csaprov|Settlement Day}} for ''any'' day (whether or not it is a {{{{{1}}}prov|Local Business Day}}) is:
*'''Cash''': for cash, the next {{{{{1}}}prov|Local Business Day}} and,
*'''Securities''': for securities, the {{{{{1}}}prov|Local Business Day}} 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.


'''{{vmcsa}}''': In the new world we have the new concept of the [[Regular Settlement Day - VM CSA Provision|''Regular'' Settlement Day]], and this is the same {{vmcsaprov|Local Business Day}} as the Demand Date. The run-off text at the end of Paragraph {{vmcsaprov|3(a)}} gives you a little more flex: if the demand came after the {{vmcsaprov|Notification Time}}, then you must make the transfer by close on the {{vmcsaprov|Regular Settlement Day}} for the next day.<ref>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!</ref>
'''{{{{{1}}}|Demand Date}}''': On or promptly following any {{{{{1}}}|Valuation Date}} (it need not be a {{{{{1}}}|Local Business Day}}) on which the {{{{{1}}}|Exposure}} has moved in its favour, one party may demand a {{{{{1}}}|Delivery Amount}} (para 2(a)) or a {{{{{1}}}|Return Amount}} (para 2(b)). <li>  


'''{{{{{1}}}|Transfer Date}}''': Under para {{{{{1}}}|3(a)}} (''{{{{{1}}}|Transfers}}'') if the demand is received ''before'' the {{{{{1}}}|Notification Time}} on a {{{{{1}}}|Demand Date}} that is a {{{{{1}}}|Local Business Day}} the transfer must be made by [[close of business]] on the related [[Regular Settlement Day - VM CSA Provision|''Regular'' Settlement Day]].<ref>The “{{csaprov|Settlement Day}}” under the {{csa}} is slightly different.</ref> If received ''after'' the {{{{{1}}}|Notification Time}} or on a non-{{{{{1}}}|Local Business Day}}, the transfer must be made by close of business on the {{vmcsaprov|Regular Settlement Day}} relating to the day<ref>Note: ''ordinary'' day, ''not'' Local Business Day</ref> ''after'' the Demand Date. <li>


===Questions===
'''{{csaprov|Settlement Day}}''': Here is where things differ materially between the {{csa}} and the {{vmcsa}}.
'''{{{{{1}}}prov|Demand Date}} not a {{{{{1}}}prov|Local Business Day}}''': What if the Demand Date is not a {{{{{1}}}prov|Local Business Day}}? E.g., what if it is received after the {{{{{1}}}prov|Notification Time}} on a Friday, meaning the {{csaprov|Settlement Day}} takes place on the date on which a trade, effected on a Saturday, would have been settled in accordance with customary practice?
{{L3}}
*'''Securities''': For securities this is ok: a trade effected on a non-business day would be deemed to be effected on the next following Local Business Day anyway, so it would pick this up.
'''{{csa}}''': The {{csaprov|Settlement Day}} for ''any'' day (whether or not it is a {{{{{1}}}|Local Business Day}}) is:
*'''Cash''': For cash, not so clear.
{{L4}}
'''What happens if the transferred credit support changes in value on the {{{{{1}}}prov|Settlement Day}}'''?<br>
'''Cash''': for cash, the next {{{{{1}}}|Local Business Day}} and, <li>
 
'''Securities''': for securities, the {{{{{1}}}|Local Business Day}} 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. </ol><li>
'''What happens to {{{{{1}}}prov|Exposure}}s if the {{{{{1}}}prov|Settlement Day}} is a long time after the Demand Date?'''<ref>As it may well be, under a {{csa}}, if the collateral is corporate [[bond]]s held in a [[clearing system]]</ref> Is the demand, if answered with irrevocable instructions to deliver, treated as having  been met, or does the {{{{{1}}}prov|Exposure}} stay outstanding until the collateral actually comes in? The answer (counterintuitive, given that the {{{{{1}}}prov|Transferee}} remains subject to the [[credit exposure]] during this time) is YES, thanks to the definitions of {{{{{1}}}prov|Delivery Amount}} and {{{{{1}}}prov|Return Amount}}, both of which include the words:
'''{{vmcsa}}''': In the new world we have the new concept of the [[Regular Settlement Day - VM CSA Provision|''Regular'' Settlement Day]], and this is the same {{vmcsaprov|Local Business Day}} as the Demand Date. The run-off text at the end of Paragraph {{vmcsaprov|3(a)}} gives you a little more flex: if the demand came after the {{vmcsaprov|Notification Time}}, then you must make the transfer by close on the {{vmcsaprov|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! </ol></ol>
{{quote|“...the {{{{{1}}}prov|Value}} as of that {{{{{1}}}prov|Valuation Date}} of the {{{{{1}}}prov|Transferor}}’s {{{{{1}}}prov|Credit Support Balance}} (adjusted to include any prior {{{{{1}}}prov|Delivery Amount}} and to exclude any prior {{{{{1}}}prov|Return Amount}}, the transfer of which, in either case, has not yet been completed and for which the relevant {{{{{1}}}prov|Settlement Day}} falls on or after such {{{{{1}}}prov|Valuation Date}}).”}}
 
'''What if I have to pay out a {{isdaprov|Transaction}} termination amount which the counterparty is already holding all or some of by way of [[variation margin]]?''' Since it will owe me that back, we can just off set those and call it quits, right? ''Wrong''. See our [[Transaction terminations and VM|separate article]] on that issue.

Latest revision as of 17:56, 26 March 2024

CSA transfer timings

This is how the timing works for CSA transfers.

Terminology check: to make this easy, we refer to both {{{{{1}}}|Delivery Amount}}s and {{{{{1}}}|Return Amount}}s as “{{{{{1}}}|Transfer Amount}}s”. 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 {{{{{1}}}|Transfer Amount}} we call a “{{{{{1}}}|Demand Date}}”.

To be clear, neither Demand Date nor {{{{{1}}}|Transfer Amount}} are “ISDA canon”.

Remember the {{{{{1}}}|Valuation Agent}} is simply the person making the demand.

  1. Value {{{{{1}}}|Exposure}} and {{{{{1}}}|Credit Support Balance}}: Firstly, value what you are going to call: the {{{{{1}}}|Transfer Amount}} under para {{{{{1}}}|2(a)}} or {{{{{1}}}|2(b)}}. This is roughly {{{{{1}}}|Credit Support Balance}} - {{{{{1}}}|Exposure}} (or vice versa).
    1. Under {{{{{1}}}|2(a)}}, the {{{{{1}}}|Transferor}} will transfer {{{{{1}}}|Eligible Credit Support}} having a {{{{{1}}}|Value}} as of the date of transfer of the {{{{{1}}}|Transfer Amount}}.
    2. Per the {{{{{1}}}|Calculations}} provision, all calculations happen at the {{{{{1}}}|Valuation Time}}. Fluctuations in value after that time won’t invalidate the {{{{{1}}}|Transfer Amount}}, but they may mean a party can immediately call for more {{{{{1}}}|Credit Support}} (that is, have another {{{{{1}}}|Demand Date}}).
    3. The {{{{{1}}}|Valuation Time}} keys off the {{{{{1}}}|Valuation Date}}.[1]
  2. {{{{{1}}}|Demand Date}}: On or promptly following any {{{{{1}}}|Valuation Date}} (it need not be a {{{{{1}}}|Local Business Day}}) on which the {{{{{1}}}|Exposure}} has moved in its favour, one party may demand a {{{{{1}}}|Delivery Amount}} (para 2(a)) or a {{{{{1}}}|Return Amount}} (para 2(b)).
  3. {{{{{1}}}|Transfer Date}}: Under para {{{{{1}}}|3(a)}} ({{{{{1}}}|Transfers}}) if the demand is received before the {{{{{1}}}|Notification Time}} on a {{{{{1}}}|Demand Date}} that is a {{{{{1}}}|Local Business Day}} the transfer must be made by close of business on the related Regular Settlement Day.[2] If received after the {{{{{1}}}|Notification Time}} or on a non-{{{{{1}}}|Local Business Day}}, the transfer must be made by close of business on the Regular Settlement Day relating to the day[3] 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 {{{{{1}}}|Local Business Day}}) is:
      1. Cash: for cash, the next {{{{{1}}}|Local Business Day}} and,
      2. Securities: for securities, the {{{{{1}}}|Local Business Day}} 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!
  1. ↑ Under the 1995 CSA you may specify either close of business on the Valuation Date or the Local Business Day immediately before it. Under the 2016 VM CSA you have flexibility to determine the Valuation Time as at the point you close your book each day.
  2. ↑ The “Settlement Day” under the 1995 CSA is slightly different.
  3. ↑ Note: ordinary day, not Local Business Day
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