Title transfer

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Sometimes called outright transfer, title transfer is when one merchant sells (or gives) something outright to another, the first thereby abandoning all its claim, interest and colour of right whatsoever to that thing. To be contrasted with a pledge or an assignment by way of security.

1995 English Law CSA

The title transfer 1995 ISDA CSA is carefully designed to create a true sale (hence references to redelivery of “Equivalent Credit Support” and not just return of posted assets). Modifications to the CSA (even by side letter or other agreement) which allow any counterparty to retain control over the Credit Support Balance held by the other party may prejudice the true sale analysis. This is what is fondly known as a title transfer collateral arrangement, about which disclosure is required thanks to Article 15 of that most excellent piece of EU doggerel, the Securities Financing Transactions Regulation.

The big difference between 1994 New York law CSAs and English law CSAs: title transfer and pledge

This feels as good a time as any to raise the great subject of title transfer and pledge. Under a 1994 New York law CSA one transfers Credit Support by means of pledge. Under a English law CSA one transfers Credit Support by means to title transfer.

What is the difference? Well, in a Nutshell:

Title transfer under a English law CSA

Under a “title transfer collateral arrangement” 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 Transferee.

Pledge under a 1994 New York law CSA (and a English law CSD)

Examples: The 1994 New York law CSAs and the English law CSD are security financial collateral arrangements in that the Pledgor creates a security interest over the document in favour of the Secured Party, but retains beneficial ownership of the assets.

Transaction” versus “Credit Support Document” complicated affair.

English law CSAs are Transactions but are not Credit Support Documents. 1994 New York law CSAs are Credit Support Documents but are not Transactions.

Because ownership transfers absolutely, the Transferee doesn’t have to do anything to enforce its collateral. It already owns it outright. Indeed, to the contrary, should the Exposure that the collateral supports disappear, the Transferor will be the creditor of the Transferee. It is as it it were a Transaction under the ISDA where the mark-to-market exposure had flipped around. Indeed, a English law CSA is a “Transaction” under the ISDA Master Agreement — it is an integral part of the ISDA Master Agreement itself, and it is the proverbial schoolboy error to label a English law CSA as a “Credit Support Document”. It is not a Credit Support Document. From the point of view of the ISDA architecture it is the Confirmation for a Transaction.

But the 1994 New York law CSAs are not Transactions, 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 ISDA’s crack drafting squad™. This all no doubt must have seen an excellently complex thing for the little gnomes in ISDA’s crack drafting squad™when they were devising the idea of the CSA back in the early nineties. Nowadays, it just seems silly. But here we are, folks.

GMSLA

Despite its name, the 2010 GMSLA transaction is one of title transfer, as can be better explained in the articles on market terminology and the term “equivalent” as it is used in the GMSLA.

Full title guarantee

Note also the concept of full title guarantee and limited title guarantee, as contemplated by the Law of Property (Miscellaneous Provisions) Act 1994

See also

  1. This doesn't stop triparty agents requiring title transfer providers to grant their counterparties a right of reuse.