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Template:M summ 2018 CSD 13(h): Difference between revisions
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Amwelladmin moved page Template:M summ 2018 CSD Secured Party Rights Event to Template:M summ 2018 CSD 13(h)
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This is just my opinion. | This is just my opinion. | ||
===What | ===What was {{icds}} ''trying'' to achieve?=== | ||
God only knows what | So this brings us to the abomination we find on the page before us. God only ''knows'' what {{icds}} ''thought'' they were ''trying'' to achieve. Whatever remote objective they had as a goal, and whatever contingencies were dogging [[the ’squad]]’s fevered subconscious as they trudged, in formation, through the moist, dengue-infested swamps of of this drafting exercise — and there is some talk that there may have been skirmishes with pockets of rogue [[Buyside counsel|buy-side advisors]] to distract them as they went waded through hip-high sludge — what is left to posterity is a confused, gibbering disaster. | ||
===What did they ''need'' to achieve? Straightforward=== | ===What did they ''need'' to achieve? Straightforward.=== | ||
All this provision does is describe ''when'' a {{imcsdprov|Secured Party}} can actually take the [[initial margin]] the {{imcsdprov|Custodian (IM)}} is holding for it. | All this provision does is describe ''when'' a {{imcsdprov|Secured Party}} can actually take the [[initial margin]] the {{imcsdprov|Custodian (IM)}} is holding for it — the return of its own [[initial margin]], and the stuff the other guy has posted, assuming the other guy is the one who, at the end of the day, owes the money. | ||
You should not be surprised to hear this should be, more or less, ''when the {{imcsdprov|Chargor}} has actually defaulted and been closed out'' — and, really, the control of secured collateral held | You should not be surprised to hear this should be, more or less, ''when the {{imcsdprov|Chargor}} has actually defaulted and been closed out, the Early Termination Amount calculated, been found to be owed by the {{imcsdprov|Chargor}}, and the {{imcsdprov|Chargor}} having failed to pay it '' — and, really, the control of secured collateral held subject to a “{{imcsdprov|Control Agreement}}” would ordinarily be most suitably dealt ''by that {{imcsdprov|Control Agreement}}''. The clue, surely, is in the name? Well, the {{imcsd}} does its own job or determining when this would be — it does a ''horrible'' job of it, truth be told, but it is a job — so (anecdotally) the market-standard {{imcsdprov|Control Agreement}}s all tend to defer to the {{imcsdprov|Secured Party Rights Event}} as determined under the {{imcsd}}. So here we are. | ||
===What ''did'' they achieve?=== | |||
An unholy mess. The starting point — crafted by [[sell-side]]-influenced squad{{tm}}, endeavours to match the ''regulatory'' margin regime as closely as possible to the broker-imposed ''contractual'' initial margin regime. But — and say what you like about the wisdom of regulation-enforced bilateral initial margin — bilateral, regulation enforced initial margin is a different prospect altogether. We suppose the squad may have been in some denial about this, and the worldwide community of regulators may have been in some denial that the sell-side would be in denial about it, too. But for the record, here are the differences: | |||
# '''It is bilateral''': Contractual margin tends not to be: the brokers require their customers to provide it. The customers don’t ask for it from brokers. | |||
# '''It is [[title transfer]]''':<ref>Or there is a wide-ranging right of [[reuse]], which makes it ''effectively'' title transfer.</ref> Therefore, whoever holds initial margin generally has it, to use as it sees fit, at all times. Where initial margin is posted away to a third party custodian with expressly ''no'' right of reuse, things are different. | |||
# '''It is held in [[safekeeping]] by a third party''': Again, if you don’t hold the margin, you can’t reuse it, are not meant to be able raise funds against it, it does not secure present [[indebtedness]],<ref>Okay, this is true of all initial margin. But where you don’t even hold it, there should not be the temptation, you know?</ref> it is there purely as a credit default mitigant. | |||
That starting point, therefore — “an {{isdaprov|Early Termination Date}} in respect of all {{isdaprov|Transaction}}s has occurred or been designated as the result of an {{isdaprov|Event of Default}} or {{imcsdprov|Access Condition}} with respect to the {{imcsdprov|Chargor}}” — is one buy-side counsel are unlikely to like, as it allow a {{imcsdprov|Secured Party}} to spring {{imcsdprov|Posted Credit Support (IM)}} ''out'' of the {{imcsdprov|Custodian}}’s possession at an arbitrary date at which time you do not know whether you are even owed anything. You don’t even know whether you are owed anything ''on'' the {{isdaprov|Early Termination Date}} for that matter (and since it is bilateral, nor, really should [[sell-side]] [[legal eagle]]s like it, either). | |||
''Or'' you can elect to let your {{imcsdprov|Control Agreement}} govern. | |||
===What would the JC suggest?=== | |||
If you can resist the urge to fire them at ISDA’s headquarters, you can damn the torpedoes and take the [[JC]]’s recommendation, as discussed below. | |||