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=== | ====CSA transfer timings==== | ||
This is how the timing works for CSA transfers | 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”. | |||
'''{{{{{1}}} | 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> | |||
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> | |||
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> | |||
'''{{ | '''{{{{{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> | |||
'''{{csaprov|Settlement Day}}''': Here is where things differ materially between the {{csa}} and the {{vmcsa}}. | |||
'''{{{{{ | {{L3}} | ||
'''{{csa}}''': The {{csaprov|Settlement Day}} for ''any'' day (whether or not it is a {{{{{1}}}|Local Business Day}}) is: | |||
{{L4}} | |||
'''What | '''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> | |||
'''{{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> | |||
====Questions==== | |||
Q: '''What if the {{{{{1}}}|Demand Date}} not a {{{{{1}}}|Local Business Day}}''': What if it is received after the {{{{{1}}}|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 following customary practice? | |||
''' | A: '''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 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 | Q: '''What happens if the transferred credit support changes in value on the {{{{{1}}}|Settlement Day}}'''?<br> | ||
Q: '''What happens to {{{{{1}}}|Exposure}}s if the {{{{{1}}}|Settlement Day}} is a long time after the Demand Date?''' It may well be, under a {{csa}}, if corporate [[bond]]s held in a [[clearing system]] are eligible collateral. Is the demand, if answered with irrevocable instructions to deliver, treated as having been met, or does the {{{{{1}}}|Exposure}} stay outstanding until the collateral comes in? The answer (counterintuitive, given that the {{{{{1}}}|Transferee}} remains subject to the [[credit exposure]] during this time) is YES, thanks to the definitions of {{{{{1}}}|Delivery Amount}} and {{{{{1}}}|Return Amount}}, both of which include the words: | |||
{{quote|“...the {{{{{1}}}|Value}} as of that {{{{{1}}}|Valuation Date}} of the {{{{{1}}}|Transferor}}’s {{{{{1}}}|Credit Support Balance}} (adjusted to include any prior {{{{{1}}}|Delivery Amount}} and to exclude any prior {{{{{1}}}|Return Amount}}, the transfer of which, in either case, has not yet been completed and for which the relevant {{{{{1}}}|Settlement Day}} falls on or after such {{{{{1}}}|Valuation Date}}).”}} | |||
Q: '''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 offset those and call it quits, right? | |||
A: ''Wrong''. See our [[Transaction terminations and VM|separate article]] on that issue. |