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| Which is nice. This is not a problem for the English law Credit Support Annexes that are {{isdaprov|Transactions}}. | | Which is nice. This is not a problem for the English law Credit Support Annexes that are {{isdaprov|Transactions}}. |
| ====Default====
| | {{csa Default under title transfer CSAs {{{1}}} |
| =====Title transfer versions=====
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| The {{{{{1}}}|default}} paragraph explains how you value the CSA itself — being a {{isdaprov|Transaction}} in its own right, of course — when closing out an {{isdama}}. The basic gist is that you treat the {{{{{1}}}|Credit Support Balance}} as of the {{isdaprov|Early Termination Date}} — being the total value of the {{{{{1}}}|Credit Support}} you have ponied up at any time — as an {{isdaprov|Unpaid Amount}}, rather than treating is as a contingent return obligation, the present value of which would go into the {{isdaprov|Close-Out Amount}} (or {{isdaprov|Loss}}, or {{isdaprov|Market Quotation}}, if you still labour under an antediluvian {{1992ma}}).<br>
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| =====Why does it reference “Unpaid Amounts”?=====
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| While technically a {{ttcsa}} is a {{isdaprov|Transaction}} in its own right, it is still a ''weird'' {{isdaprov|Transaction}}. The standard “[[replacement cost]]” valuation method doesn’t work brilliantly: whereas a normal Swap Transaction has defined payments upfront, each of which can be valued and discounted back to the present to reveal a [[present value]], payment obligations under a {{{{{1}}}}} depend on the aggregate discounted cashflows of all the ''other'' {{isdaprov|Transaction}}s under your {{isdama}} which the {{{{{1}}}}} covers. So good luck determining, in the abstract, the “[[replacement cost]]” of something like that.
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| But the good news is you don’t have to: the {{{{{1}}}|Credit Support Balance}} isn’t calculated by reference to discounted future cashflows: rather, it is just the inverse of the aggregate present value of all the other {{isdaprov|Transactions}} under the {{isdama}}. Which figures: that is, after all, what the CSA is suppose to produce. So the “[[replacement cost]]” on any day is just the prevailing value of the {{{{{1}}}|Credit Support Balance}}. It’s easier to treat that as an {{isdaprov|Unpaid Amount}} (none of this tedious mucking about with replacement costs and so on). But that means you have to deem the {{isdaprov|Close-Out Amount}} as zero.
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| ''Do not read this following paragraph if you can humanly avoid it as it will make you cry.''
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| Or, if you are under an unmodded {{1992ma}}, the {{isdaprov|Market Quotation}}/{{isdaprov|Loss}}, [[as the case may be]]. Spoddy point: “{{isdaprov|Loss}}” ''includes'' the “{{isdaprov|Unpaid Amount}}” concept in its definition:
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| {{quote|
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| “{{isdaprov|Loss}} includes losses and costs (or gains) in respect of any payment or delivery required to have been made (assuming satisfaction of each applicable condition precedent) on or before the relevant {{isdaprov|Early Termination Date}} and not made...”}}
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| {{isda92prov|Market Quotation}} does not include {{isda92prov|Unpaid Amounts}}, but no-one in their right mind uses it anyway, and those that do will find there are no {{isda92prov|Market Quotation}}s, whereupon it defaults to {{isda92prov|Loss}}. So there is that.
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| =====Including “comprehensive” Termination Events===== | | =====Including “comprehensive” Termination Events===== |
| Consider expanding of the {{{{{1}}}|Default}} provision to include “{{isdaprov|Termination Event}}s where all {{isdaprov|Transactions}} are {{isdaprov|Affected Transaction}}s”. This is as per Section 3.2 of the 2001 ISDA Margin Provisions which recommend that Paragraph {{{{{1}}}|6}} of the {{tag|CSA}} should apply where all {{isdaprov|Transactions}} are closed out following an {{isdaprov|Event of Default}} or “{{{{{1}}}|Specified Condition}}” — the latter of which is defined to include the {{isdaprov|Termination Events}} listed under the {{isdama}}. All {{isdaprov|Transaction}}s would likely be {{isdaprov|Affected Transactions}} should a {{isdaprov|Credit Event Upon Merger}} or {{isdaprov|Additional Termination Event}} occur. | | Consider expanding of the {{{{{1}}}|Default}} provision to include “{{isdaprov|Termination Event}}s where all {{isdaprov|Transactions}} are {{isdaprov|Affected Transaction}}s”. This is as per Section 3.2 of the 2001 ISDA Margin Provisions which recommend that Paragraph {{{{{1}}}|6}} of the {{tag|CSA}} should apply where all {{isdaprov|Transactions}} are closed out following an {{isdaprov|Event of Default}} or “{{{{{1}}}|Specified Condition}}” — the latter of which is defined to include the {{isdaprov|Termination Events}} listed under the {{isdama}}. All {{isdaprov|Transaction}}s would likely be {{isdaprov|Affected Transactions}} should a {{isdaprov|Credit Event Upon Merger}} or {{isdaprov|Additional Termination Event}} occur. |