Template:Credit support types capsule: Difference between revisions

===The manifold varieties of credit mitigation===

“{{isdaprov|Credit support}}” under an {{isdama}} is handled away from a given Swap {{isdaprov|Transaction}}, under a separate [[credit support annex]] which references a counterparty’s net [[exposure]] across the whole portfolio of {{isdaprov|Transaction}}s

*'''{{csa}}''': an [[English law]] [[credit support annex]] is itself a {{isdaprov|Transaction}} under the {{isdama}}, under which the parties exchange {{csaprov|Eligible Credit Support}} (in the olden days, often various kinds of high-grade [[bond]]s ''or'' cash; more recently, in [[VM]] only arrangements, cash only) with a market value designed to exactly offset the net exposure under all the other “real” {{isdaprov|Transaction}}s.

*'''English law {{pgmsla}}''': {{isla}} developed the {{pgmsla}} to deal with punitive capital rules which required financial institutions to risk-weight excess Collateral balances. Solution: financial institution pledges them, rather than title-transferring them. Important: there is no right to rehypothecate, because that would undermine the pledge. Thus a {{pgmsla}} is a genuine secured lending arrangement.

*'''New York law {{msla}}''': Like the {{nycsa}}, the {{msla}} is a [[pledge]]-with-[[rehypothecation]] arrangement: it looks like a security interest, but for practical purposes isn’t. Aside from upsetting your CASS people, it functions practically as if the person holding Collateral at any time is its absolute owner with an obligation to return something equivalent.