Threshold - CSA Provision

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CSA Anatomy


In a Nutshell Section Threshold:

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1995 ISDA CSA full text of Section Threshold:

"Threshold” means, with respect to a party, the Base Currency Equivalent of the amount specified as such for that party in Paragraph 11(b)(iii)(B); if no amount is specified, zero.
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Related Agreements
Click here for the text of Section Threshold in the 1995 English Law CSA
Click here for the text of Section Threshold in the 2016 English Law VM CSA
Click [[{{{3}}} - NY VM CSA Provision|here]] for the text of the equivalent, Section [[{{{3}}} - NY VM CSA Provision|{{{3}}}]] in the 2016 NY Law VM CSA
Comparisons
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Resources Full wikitext | Nutshell wikitext
Navigation 1 (Interpretation) | 2 (Credit Support Obligations) | 3 (Transfers, Calculations and Exchanges) | 4 (Dispute Resolution) | 5 (Title Transfer etc) | 6 (Default) | 7 (Representation) | 8 (Expenses) | 9 (Miscellaneous) | 10 (Definitions) | 11 (Elections and Variables)

Index — Click ᐅ to expand:

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Calculating your 1995 English Law CSA

Superficially things are quite different between the 1995 English Law CSA and the 2016 English law VM CSA, but this all boils down to the fact that the 2016 English law VM CSA is meant to be a zero-threshold, variation margin-only affair, so the concepts of Independent Amount and Threshold, both of which confuse the 1995 English Law CSA, aren’t there to get in the way. Unless you go and put them in anyway, as we shall see...

1995 English Law CSA

How the IA contributes to the Credit Support Amount — being the amount of credit support in total that one party must have given the other at any time[1] under the 1995 English Law CSA can be mind-boggling.

It pans out for a Transferee like so:

This leaves you with a formula for a Transferee’s Credit Support Amount as follows: Max[0, (ETee + IATor - IATee + Threshold)].

Let’s plug in some numbers. Say:

Your Credit Support Amount is therefore the greater of zero and 10,000,000 + 2,000,000 - 0 + 5,000,000) = 7,000,000.

Now, whether you have to pay anything or receive anything as a result — whether there is a Delivery Amount or a Return Amount, in other words — depends whether your Credit Support Amount is greater or smaller than your prevailing Credit Support Balance, by at least the Minimum Transfer Amount.

2016 English law VM CSA with no IA amendment

Since the 2016 English law VM CSA assumes there is no Independent Amounts and no Thresholds, it is quite a lot easier. It is just the Exposure. So much so, that there isn’t even a concept of the “Credit Support Amount” under the 2016 English law VM CSA, unless you have retrofitted one, and who in their right mind would do that?

Oh.

You have, haven’t you. You’ve gone and co-opted the Credit Support Amount (VM/IA) concept in your Paragraph 11 elections. Yes you did. No, don’t blame your credit department; don’t say you were just following orders. You did it.

2016 English law VM CSA with a customised IA amendment

Never mind. Well, just for you, the formula is a sort of half-way house: Under this unholy bastardisation of a 2016 English law VM CSA, a Transferee’s Credit Support Amount will be: Max[0, (ETee + IATor - IATee)].

References

  1. As opposed to the amount required to be transferred on that day, considering the “Credit Support Balance” the Transferee already holds — that’s the Delivery Amount or Return Amount, as the case may be.
  2. There’s something faintly absurd both parties exchanging Independent Amounts by title transfer — they net off against each other — but that’s as may be. Stupider things have happened. SFTR disclosure, for example.