Template:Csa Credit Support Obligations summ: Difference between revisions

This is how the timing works for CSA transfers. Remember the {{{{{1}}}prov|Valuation Agent}} is simply the person making the demand. Terminology check: to make this easy we refer to both {{{{{1}}}prov|Delivery Amount}}s ''and'' {{{{{1}}}prov|Return Amount}}s as “'''{{{{{1}}}prov|Transfer Amount}}s'''”. The date on which someone actually demands a Transfer Amount we call a “'''{{{{{1}}}prov|Demand Date}}'''”.

'''Valuation of {{{{{1}}}prov|Exposure}} and {{{{{1}}}prov|Credit Support Balance}}''': Firstly, you must value what you are going to call, which will be the Transfer Amount under para {{{{{1}}}prov|2(a)}} or {{{{{1}}}prov|2(b)}}. This is roughly {{{{{1}}}prov|Credit Support Balance}} - {{{{{1}}}prov|Exposure}} (or ''vice versa'').  

Per para {{{{{1}}}prov|2(a)}} the {{{{{1}}}prov|Transferor}} will transfer {{{{{1}}}prov|Eligible Credit Support}} having a {{{{{1}}}prov|Value}} equal to the {{{{{1}}}prov|Transfer Amount}} ''as of the date of transfer''.  Under the {{{{{1}}}prov|Calculations}} provision all calculations happen at the relevant {{{{{1}}}prov|Valuation Time}}. Fluctuations in value after that time won’t invalidate the {{{{{1}}}prov|Transfer Amount}}, but they may mean a party can immediately call for more {{{{{1}}}prov|Credit Support}} (that is, have ''another'' {{{{{1}}}prov|Demand Date}}). The {{{{{1}}}prov|Valuation Time}} in turn keys off the {{{{{1}}}prov|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 your book each day.</ref>

'''{{{{{1}}}prov|Demand Date}}''':  On any date that is (or promptly follows) a {{{{{1}}}prov|Valuation Date}}<ref>It need not be a Local Business Day.</ref> in which the {{{{{1}}}prov|Exposure}} has moved in its favour, one party may demand a {{{{{1}}}prov|Delivery Amount}}<ref>Under para 2(a).</ref> or a {{{{{1}}}prov|Return Amount}}.<ref>Under para 2(b).</ref>  

'''{{{{{1}}}prov|Transfer Date}}''': Under para {{{{{1}}}prov|3(a)}} ({{{{{1}}}prov|Transfers}}) if the {{{{{1}}}prov|Demand Date}} is a {{{{{1}}}prov|Local Business Day}} and demand is received ''before'' the {{{{{1}}}prov|Notification Time}}, the transfer must be made not later than [[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}}}prov|Notification Time}} (or at any time on a non-{{{{{1}}}prov|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. <br>

'''{{csa}}''': The {{csaprov|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.

'''{{{{{1}}}prov|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 {{csaprov|Settlement Day}} takes place on the date on which a trade, effected on a Saturday, would have been settled in accordance with customary practice?

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

'''What happens to {{{{{1}}}prov|Exposure}}s if the {{{{{1}}}prov|Settlement Day}} is a long time after the Demand Date?'''<ref>As it may well be, under a {{csa}}, if the collateral is corporate [[bond]]s held in a [[clearing system]]</ref> 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:

{{quote|“...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}}).”}}

'''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 off set those and call it quits, right? ''Wrong''. See our [[Transaction terminations and VM|separate article]] on that issue.