Template:Credit support amount capsule

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1995 CSA

Under a 1995 CSA the Credit Support Amount is the total amount one counterparty must have delivered to the other at any time: the combination of the Exposure to that party and the net Independent Amounts it must post, minus any agreed Threshold.

No equivalent in the 2016 VM CSA

Careful observers will have noticed there isn't such a concept in the 2016 VM CSA. This is because the Credit Support Amount a party may require was no more than its Exposure to the opther party — as already defined in the CSA — plus any pertinent Independent Amounts due from the other party and less any agreed Threshold. Life is much simpler in the world of regulatory variation margin envisaged by the 2016 VM CSA, concerned as it is only with variation margin. That is, there are no Independent Amounts.[1]

And what about the 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 Threshold, even just a nominal one.

So the Credit Support Amount vanishes, in a puff of logic and existential redundancy.

  1. Well, alright, should be no Independent Amounts. Independent Amounts traditionally are there to protect counterparties against potential swings in Exposure between margin calls. They are a buffer against the risk of market moves. But a title transfer of collateral to cover an Exposure that doesn’t yet, and might never, exist creates an actual exposure the other way, as the holder of the Independent Amount is now actually indebted to the Transferor for its return. That said, there is a custom-built addition in Paragraph 11 that lets you build them back in if you want to. And who, in their right chicken-lickeny mind, wouldn’t want to?