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The thing which, I think, causes all the confusion is the nature of payments under ''normal'' {{isdaprov|Transaction}}s are deterministic and generally specified in the {{isdaprov|Confirmation}}, whereas whether you need to make a payment at all under a CSA on any day depends, and how much you need to pay, depends on quite a lot of things and you only find out at the last minute. Therefore CSA payments are due “a regular [[settlement cycle]] after they are called” — loosey goosey, right? — whereas normal swap payments are due (say) “on the 15th of March” | The thing which, I think, causes all the confusion is the nature of payments under ''normal'' {{isdaprov|Transaction}}s are deterministic and generally specified in the {{isdaprov|Confirmation}}, whereas whether you need to make a payment at all under a CSA on any day depends, and how much you need to pay, depends on quite a lot of things and you only find out at the last minute. Therefore CSA payments are due “a regular [[settlement cycle]] after they are called” — loosey goosey, right? — whereas normal swap payments are due (say) “on the 15th of March” | ||
Day 1: Party A has an {{{{{1}}}|Exposure}} of 100 | *''Day 1'': Party A has an {{{{{1}}}|Exposure}} — is out of the money — to the tune of 100. Its prevailing {{{{{1}}}|Credit Support Balance}} is 90, so (let’s say, for fun, ''after'' the {{{{{1}}}|Notification Time}} on the {{{{{1}}}|Demand Date}}) Party B has called it for a {{{{{1}}}|Delivery Amount}} of a further 10, which it must pay, but not until tomorrow. | ||
*''Day 2'': Meanwhile, Party A has a {{isdaprov|Transaction}} payment of 10 that falls due to Party B, also tomorrow. The arrival of this payment will change Party A’s Exposure to Party B so it is 90. Assuming Party A also pays the Delivery Amount, by knock-off time tomorrow it will have posted a {{{{{1}}}|Credit Support Balance}} of 100, and its Exposure to Party B will only be 90. This means it will be entitled to call Party B for a {{{{{1}}}|Return Amount}} of 10. | |||
This seems rather a waste of operational effort, and will also take years off your credit officer’s life and may even cause his hair to catch fire. Can Party A just ''not'' pay the further Delivery Acount in anticipation of what will happen tomorrow? | |||
So it seems a little odd for Party A to be making a payment to Party B | |||
Fun times in the world of [[collateral]] [[operations]]. | Fun times in the world of [[collateral]] [[operations]]. |