Template:ISDA transaction and collateral flows: Difference between revisions

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 ==={{isdaprov|Transaction}} flows and [[collateral]] flows===
 In a fully margined {{isdama}}, [[all other things being equal]], the termination of a {{isdaprov|Transaction}} will lead to two equal and opposite effects:
-*A final payment or exchange  under the {{isdaprov|Transaction}} having a value more or less equal to the mark-to-market value of that Transaction;
+*A final payment or exchange  under the {{isdaprov|Transaction}} having a value more or less equal to the [[present value]] of that {{isdaprov|Transaction}};
 *A offsetting change in the Exposure under the {{t|CSA}} in exactly the same value.
-The strict sequence of these payments ought to be that the {{isdaprov|Transaction}} termination payment goes first, and the collateral payment follows.
+The strict sequence of these payments ought to be that the {{isdaprov|Transaction}} termination payment goes first, and the collateral return follows, since it can only really be calculated and called once the termination payment has been made.
-Though that’s an odd outcome, as it means they paying party is knowingly increasing its Exposure to the counterparty for the couple of days it will take for that collateral return to find its way back. What with the regulators’ obsession on forcing parties to minimise their risk to each other, wouldn’t it be better to apply some kind of set off in anticipation?
+I know what you’re thinking. Hang on! that means the termination payer pays out knowing this will increase its {{isdaprov|Exposure}} for the couple of days it will take for that collateral return to find its way back. That’s stupid! What with the regulators’ obsession minimise systemic counterparty credit risk, wouldn’t it be better to apply some kind of [[Netting of Payments - ISDA Provision|settlement netting]] in anticipation, to keep the credit exposure down?
-You’d think so, but as of the time of writing, this doesn’t happen in practice. {{isdaprov|Transaction}} flows and [[collateral]] flows tend to be handled by different operational parts of an institution, and systems don’t talk.
+Now, dear reader, have you learned nothing? Of course not.  Now there is a burgeoning DTCC product designed to do that — it is in its infancy — but the theory of the ISDA and CSA settlement flows puts egg before chicken and, at the moment, {{isdaprov|Transaction}} flows and [[collateral]] flows tend to be handled by different operational parts of an institution, and their systems don’t talk.
 Anyway, currently, the payer of a terminating transaction has its heart in its mouth for a day or so. <br>