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Template:Csa Transfer of Title summ: Difference between revisions
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{{Csa title transfer vs pledge|{{{1}}}}} | {{Csa title transfer vs pledge|{{{1}}}}} | ||
====Distributions and Interest Amount==== | |||
It used to be so simple, until the {{vmcsa}} came along and started confusing everything with all this talk of {{vmcsaprov|Interest Adjustment}}s versus {{vmcsaprov|Interest Payment}}s. | |||
Paragraph {{csaprov|5(c)(i)}} is self-contained. It does not need adjustment in Paragraph {{csaprov|11}}: the reference to “Distributions” in the heading of Paragraph {{csaprov|11(f)}} simply reflects the heading of Paragraph {{csaprov|5(c)}}, and does not imply you need to add anything. | |||
Paragraph {{csaprov|5(c)(i)}} is identical in the {{csa}} and the {{vmcsa}}. It is only in Paragraph {{csaprov|5(c)(ii)}} that things start getting a bit funky. | |||
This part simply requires the holder of credit support to manufacture income back to the poster of credit support — as long as doing so wouldn’t create in itself trigger a further {{csaprov|Delivery Amount}} by the {{csaprov|Transferor}} — thus precipitating a (short) game of operational ping-pong between the two parties’ back office teams. | |||
How would that happen? [[All other things being equal|All other things staying equal]], it couldn’t: if the {{csaprov|Transferee}}’s {{csaprov|Exposure}} and the {{csaprov|Value}} of the {{csaprov|Transferor}}’s {{csaprov|Credit Support Balance}} stayed the same as it was when [[variation margin]] was last called, the arrival of income on any part of that {{csaprov|Credit Support Balance}} ought to be spirited back to the {{csaprov|Transferor}}: as long as the {{csaprov|Transferee}} was still holding it, the {{csaprov|Transferee}} otherwise would become indebted for the value of that income to the {{csaprov|Transferor}}. | |||
But as we know, {{csaprov|Exposure}}s ''don’t'' just quietly sit there. If they did, there wouldn’t be any need for initial margin, and collecting even variation margin would be less fraught. So if the {{csaprov|Transferee}}’s {{csaprov|Exposure}} has increased, the arrival of that income might serve to fill a hole in the existing coverage, in which case, why pay it away only to ask for it back again? Similarly, the value of a pending but as-yet-unpaid income payment will be priced into the value of the [[securities]] generating it.<ref>It will trade “[[dirty price|dirty]]” until the distribution is paid, at which point it will trade clean.</ref> So even if the {{csaprov|Exposure}} ''hasn’t'' changed in the mean time, the arrival of a [[coupon]] or [[dividend]] will reduce the {{csaprov|Value}} of those [[securities]] on which it was paid, so — [[all other things being equal]] — the {{csaprov|Transferee}} might expect to hang onto the {{csaprov|Distribution}}. <br> | |||