Template:Csa title transfer vs pledge: Difference between revisions

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-==={{tag|Title transfer}} vs. {{tag|Pledge}}===
+===The big difference between {{nycsa}}s and {{ukcsa}}s: {{tag|title transfer}} and {{tag|pledge}}===
-This feels as good a time as any to raise the great subject of [[title transfer]] and [[pledge]]. In a {{nutshell}}:
+This feels as good a time as any to raise the great subject of [[title transfer]] and [[pledge]]. Under a {{nycsa}} one transfers {{nycsaprov|Credit Support}} by means of [[pledge]]. Under a {{ukcsa}} one transfers {{vmcsaprov|Credit Support}} by means to [[title transfer]].
-*'''Title Transfer''': The {{1995csa}} – outside the US, by far the most common type – is a [[title transfer]] document:
-**when securities delivered to a party they become the recipient's property absolutely
+What is the difference? Well, in a {{nutshell}}:
-**recipient does not hold them in custody for the transferor;
+====Title transfer under a {{ukcsa}}====
-**recipient has only an obligation to redeliver an equivalent security.
+Under a “{{ttca}}” when a party provides collateral it transfers it to the other party outright and absolutely: it ''gives'' it, free of all reversionary interests, to the {{{{{1}}}prov|Transferee}}.
-**Therefore no {{tag|CASS}} question arises at any point.
+*Securities delivered to {{{{{1}}}prov|Transferee}} become the {{{{{1}}}prov|Transferee}}’s property absolutely
-*'''Pledge''': The [[English law CSD]] and {{1994csa}}  are “pledge” documents:
+*{{{{{1}}}prov|Transferee}} does not hold them in custody for the {{{{{1}}}prov|Transferor}};
-**The transferor delivers the securities to the receipient to hold for the transferor – the transferor retains title
+*{{{{{1}}}prov|Transferee}} has only an obligation to redeliver an [[equivalent]] security.
-**Recipient holds securities as transferor's custodian subject to a {{tag|security interest}} securing their obligation under the swap.
+*Therefore no {{tag|CASS}} or [[custody]] question arises at any point - the {{{{{1}}}prov|Transferor}} gives up all legal claims to the asset.
-**The custody arrangement only exists while recipient holds the security, not before.
+*Nor does it make any sense to talk about the {{{{{1}}}prov|Transferee}}’s right to [[reuse]] or [[rehypothecate]] the asset. It owns the asset outright: by definition it can do what it wants with it; the {{{{{1}}}prov|Transferor}} can’t stop it.<ref>This doesn't stop [[triparty agent]]s requiring title transfer providers to grant their counterparties a right of reuse.</ref>
+====Pledge under a {{nycsa}} (and a {{csd}})====
+Examples: The {{nycsa}}s and the {{csd}} are {{sfca}}s in that the {{nyvmcsaprov|Pledgor}} creates a [[security interest]] over the document in favour of the {{nyvmcsaprov|Secured Party}}, but retains beneficial ownership of the assets.
+*The {{{{{1}}}prov|Pledgor}} delivers the assets to the {{nyvmcsaprov|Secured Party}} to hold in [[custody]], subject to the [[security interest]], for the {{{{{1}}}prov|Pledgor}}. The {{{{{1}}}prov|Pledgor}} retains title to the assets.
+*{{{{{1}}}prov|Secured Party}} holds the assets subject to a {{tag|security interest}} securing its payment obligation under the related transaction.
+*The custody arrangement only exists while {{{{{1}}}prov|Secured Party}} holds the security, not before.
+**Under the {{nycsa}}s  the {{nyvmcsaprov|Secured Party}} may nonetheless be entitled to sell the pledged asset absolutely, under a process known as [[rehypothecation]]. Don’t laugh. The [[JC]] thinks this converts the pledge into a {{ttca}} — at least at the point of [[rehypothecation]]. If so, it makes you wonder why, you know, all the fuss with security interests.
+===“{{isdaprov|Transaction}}” versus “{{isdaprov|Credit Support Document}}” complicated affair.===
+You are going to love this. Strap yourselves in. Are you ready?
+*''{{ukcsa}}s are {{isdaprov|Transaction}}s but are not {{isdaprov|Credit Support Document}}s.
+*''{{nycsa}}s '''not''' {{isdaprov|Transaction}}s, and, explicitly, '''are''' {{isdaprov|Credit Support Document}}s'', though you should not (according to the user’s guide) describe the parties to one as “{{nycsaprov|Credit Support Provider}}s”.
+*''{{csd}}s (including the {{imcsd}})  are '''not''' {{isdaprov|Transaction}}s and, explicitly, '''are''' {{isdaprov|Credit Support Document}}s''.
+This means the Events of Default for failure to pay under an English law CSA — being a {{isdaprov|Transaction}}, a failure to pay under it is a Section {{vmcsaprov|5(a)(i)}} {{vmcsaprov|Failure to Pay or Deliver}} — are different from those applying to New York law CSAs and English law CSDs (being Credit Support Documents, a failure to pay under these is a Section {{isdaprov|5(a)(iii)}} {{isdaprov|Credit Support Default}}).
+Because ownership transfers absolutely, the {{{{{1}}}prov|Transferee}} doesn’t have to do anything to enforce its collateral. It already owns it outright. Indeed, to the contrary, should the {{{{{1}}}prov|Exposure}} that the collateral supports disappear, the {{{{{1}}}prov|Transferor}} will be the creditor of the {{{{{1}}}prov|Transferee}}. It is as it it were a {{isdaprov|Transaction}} under the ISDA where the mark-to-market exposure had flipped around. Indeed, a {{ukcsa}} '''is''' a “{{isdaprov|Transaction}}” under the {{isdama}} — it is an integral part of the {{isdama}} itself, and it is the proverbial schoolboy error to label a {{ukcsa}} as a “{{isdaprov|Credit Support Document}}”. It is not a Credit Support Document. From the point of view of the ISDA architecture it is the {{isdaprov|Confirmation}} for a {{isdaprov|Transaction}}.
+But the {{nycsa}}s are ''not'' {{isdaprov|Transaction}}s, for the same reason: title ''doesn’t'' change hands. They are old fashioned security arrangements. Therefore they '''are'' Credit Support Documents in the labyrinthine logic of {{icds}}. This all no doubt must have seen an excellently complex thing for the little gnomes in {{icds}}when they were devising the idea of the [[CSA]] back in the early nineties. Nowadays, it just seems silly. But here we are, folks.