Template:CSA Transfer Description

Timing of transfers under a {{{{{1}}}}}

This is how the timing works for {{{{{1}}}}} transfers:

Demand Date
On any date, be it a {{{{{1}}}prov|Local Business Day}} or not, (call it a “Demand Date”, but note per {{{{{1}}}prov|2(a)}} or {{{{{1}}}prov|2(b)}} it must be made “on or promptly following a {{{{{1}}}prov|Valuation Date}}”), a party may demand a {{{{{1}}}prov|Transfer}} under para {{{{{1}}}prov|2(a)}} (for a {{{{{1}}}prov|Delivery Amount}}) or {{{{{1}}}prov|2(b)}} (for a {{{{{1}}}prov|Return Amount}}).

{{{{{1}}}prov|Valuation Time}} - {{{{{1}}}prov|Exposure}}
The point at which the valuation is made is the {{{{{1}}}prov|Valuation Time}}. This keys off the {{{{{1}}}prov|Valuation Date}}:

• under the 1995 CSA the parties specify either close of business on the Valuation Date or the Local Business Day immediately before the Valuation Date), and therefore not necessarily the Demand Date.
• under the 2016 VM CSA the Valuation Agent has a bit of flexibility to determine the Valuation Time as at the point it closes its book each day.

{{{{{1}}}prov|Valuation Time}} - {{{{{1}}}prov|Eligible Credit Support}}
Per para {{{{{1}}}prov|2(a)}} the Transferor will transfer {{{{{1}}}prov|Eligible Credit Support}} having a {{{{{1}}}prov|Value}} equal to the {{{{{1}}}prov|Delivery Amount}} as of the date of transfer. Under the {{{{{1}}}prov|Calculations}} provision all calculations of {{{{{1}}}prov|Value}} happen at the relevant {{{{{1}}}prov|Valuation Time}}. Fluctuations in value in the credit support actually delivered after that time won’t invalidate the transfer amount, but they may mean a party can immediately call for more {{{{{1}}}prov|Credit Support}} (that is, have another Demand Date).

{{{{{1}}}prov|Transfer Date}}
Under para {{{{{1}}}prov|3(a)}} ({{{{{1}}}prov|Transfers}}) if the demand is received before the {{{{{1}}}prov|Notification Time}} on a {{{{{1}}}prov|Local Business Day}}) on that Demand Date, the transfer will be made not later than close of business on the related Settlement Day (under the 1995 CSA) or Regular Settlement Day (under the 2016 VM CSA. If received after the {{{{{1}}}prov|Notification Time}}, or at any time on day that isn’t a {{{{{1}}}prov|Local Business Day}}), the transfer must be made by close of business on the Settlement Day/Regular Settlement Day relating to the day (note: ordinary day, not {{{{{1}}}prov|Local Business Day}}) after the Demand Date.

Settlement Day
Here is where things differ materially between the 1995 CSAand the 2016 VM CSA.
1995 CSA: The 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.

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.

Questions

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 Settlement Day takes place on the date on which a trade, effected on a Saturday, would have been settled in accordance with customary practice?

• 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.
• Cash: For cash, not so clear.

What happens if the transferred credit support changes in value on the {{{{{1}}}prov|Settlement Day}}?

What happens to {{{{{1}}}prov|Exposure}}s if the {{{{{1}}}prov|Settlement Day}} is a long time after the Demand Date? 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:

“...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}}).”

This leads to some rather anomalous results.