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Template:Credit support amount capsule: Difference between revisions
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===={{1995csa}}==== | ===={{1995csa}}==== | ||
Under a {{1995csa}} {{csaprov|Credit Support Amount}} is the total amount one counterparty must have delivered to the other at any time: | Under a {{1995csa}} the {{csaprov|Credit Support Amount}} is the total amount one counterparty must have delivered to the other at any time: the combination of the {{csaprov|Exposure}} to that party and the net {{csaprov|Independent Amounts}} it must post, minus any agreed {{csaprov|Threshold}}. | ||
====No equivalent in the {{2016csa}}==== | ====No equivalent in the {{2016csa}}==== | ||
There is no concept of a {{vmcsaprov|Credit Support Amount}} in the {{2016csa}} because the {{vmcsaprov|Credit Support Amount}} a party may require is no more than its {{csaprov|Exposure}} to the other party — as already defined in the {{vmcsa}}. In the old {{csa}} one had to consider any pertinent {{csaprov|Independent Amount}}s and the agreed {{csaprov|Threshold}}. | |||
=====No {{csaprov|Independent Amount}}s===== | |||
Life is much simpler in the world of regulatory [[variation margin]] for which the {{2016csa}} is designed. Its only concern is [[variation margin]]. That is, there ''are'' no {{csaprov|Independent Amount}}s.<ref>Well, alright, ''should be'' no {{csaprov|Independent Amount}}s.</ref> In the old {{csa}}, {{csaprov|Independent Amount}}s were there to protect counterparties against ''potential'' swings in {{vmcsaprov|Exposure}} that might happen before the next margin call: that is, they are a buffer against ''the risk'' of market moves. | |||
But in the old world, {{csaprov|Independent Amount}}s were transferred outright to the Transferee, by title transfer.<ref>Under Engliush law CSAs, at any rate. But the effect was the same where [[rehypothecation]] was allowed under a {{1994csa}} too.</ref> This created a conceptual issue for regulators, who were trying to ''minimise'' credit exposure between the parties: a [[title transfer]] of [[collateral]] to cover an {{vmcsaprov|Exposure}} that doesn’t yet — and might never — exist creates a ''negative'' exposure, because the holder of an {{csaprov|Independent Amount}} would be indebted to the {{csaprov|Transferor}} for its return.<ref>Hence, [[regulatory initial margin]] cannot be [[cash]], and must be [[Pledge|pledged]] and not [[title transfer]]red.</ref> | |||
All that said, there is a custom-built addition in Paragraph {{vmcsaprov|11}}<ref>For more information see {{csaprov|Credit Support Amount (VM/IA)}}.</ref> that lets you build an {{csaprov|Independent Amount}} concept back in if you really want one. And who, in their right [[chicken-licken]]y mind, wouldn’t? | |||
=====No {{csaprov|Threshold}} either===== | |||
And what about the {{vmcsaprov|Threshold}}? Well, there shouldn’t be one of those either: The thrust of the margin reforms in the different jurisdictions was to require counterparties to collateralise their total mark-to-market exposure, not just most of it, so in a rush of uncharacteristic blood to the head, ISDA did away with the concept altogether. There is usually ''some'' flex in the regulations, and don’t be surprised to see your more tempestuous counterparties hotly insisting on a {{vmcsaprov|Threshold}}, even just a nominal one. <br> | |||
So the {{csaprov|Credit Support Amount}} vanishes, in a puff of logic and existential redundancy. <br> | |||