Use of Posted Collateral (VM) - NY VM CSA Provision

2016 NY VM CSA Anatomy™ Go Premium In a Nutshell™ Section 6(c): 6(c) Use of Posted Collateral (VM). Unless otherwise agreed specified in Paragraph 13 and without limiting the parties’ rights and obligations (especially remedies under Paragraph 8), while the Secured Party is not effectively in default, it may, notwithstanding Section 9-207 of the Uniform Commercial Code; 6(c)(i) Rehypothecate: rehypothecate, sell outright or otherwise deal with any Posted Collateral (VM) it holds absolutely; and 6(c)(ii) Register: register Posted Collateral (VM) in its own or its Custodian (VM)’s name. References to Transfering Eligible Credit Support (VM) or Posted Credit Support (VM) under this 2016 NY Law VM CSA will be construed to apply as if the Secured Party still holds all Posted Collateral (VM) even where in fact it doesn’t. view template 2016 NY VM CSA full text of Section 6(c): 6(c) Use of Posted Collateral (VM). Unless otherwise specified in Paragraph 13 and without limiting the rights and obligations of the parties under Paragraphs 3, 4(d)(ii), 5, 6(d) and 8, if the Secured Party is not a Defaulting Party or an Affected Party with respect to a Specified Condition and no Early Termination Date has occurred or been designated as the result of an Event of Default or Specified Condition with respect to the Secured Party, then the Secured Party will, notwithstanding Section 9-207 of the New York Uniform Commercial Code, have the right to: 6(c)(i) sell, pledge, rehypothecate, assign, invest, use, commingle or otherwise dispose of, or otherwise use in its business any Posted Collateral (VM) it holds, free from any claim or right of any nature whatsoever of the Pledgor, including any equity or right of redemption by the Pledgor; and 6(c)(ii) register any Posted Collateral (VM) in the name of the Secured Party, its Custodian (VM) or a nominee for either. For purposes of the obligation to Transfer Eligible Credit Support (VM) or Posted Credit Support (VM) pursuant to Paragraphs 3 and 5 and any rights or remedies authorized under this Agreement, the Secured Party will be deemed to continue to hold all Posted Collateral (VM) and to receive Distributions made thereon, regardless of whether the Secured Party has exercised any rights with respect to any Posted Collateral (VM) pursuant to (i) or (ii) above. view template Related Agreements Click here for the text of Section 6(c) in the 1994 New York law CSA There is no equivalent to this provision in either the 1995 CSA or the 2016 VM CSA Resources Full wikitext | Nutshell wikitext Navigation 1 (Interpretation) | 2 (Security Interest) | 3 (Credit Support Obligations) | 4 ( Conditions Precedent, Transfer Timing, Calculations and Substitutions) | 5 (Dispute Resolution) | 6 (Holding and Using Posted Collateral (VM)) | 7 (Events of Default) | 8 (Certain Rights and Remedies) | 9 (Representations) | 10 (Expenses) | 11 (Miscellaneous) | 12 (Definitions) | 13 (Elections and Variables) Index: Click ᐅ to expand: 2016 NY VM CSA Comments? Questions? Suggestions? Requests? Insults? We’d love to 📧 hear from you. Sign up for our newsletter.

This is the classic part of your security interest 2016 NY Law VM CSA that converts it into a title transfer CSA, meaning — cough, as with much New York law frippery — that you might as well not bother with calling this a pledge or security interest in the first place.

So I give my asset to you, right, carefully only pledging it as security for my indebtedness to you, and protect myself from your credit risk because I retain beneficial ownership of the asset. It is mine, not yours, and should you explode into a thousand points of light, then, once I have settled my trading account with your administrator, I can have my asset back.

Right?

Except that, the moment you get it, you may unconditionally sell my asset, absolutely, to anyone else you want to, at any time, or actually, damn the torpedoes, just take it onto your own balance sheet and hold it in your own name. Whereupon, my claim against you is for the return of my asset that you no longer have, or have put into your general bankruptcy estate, so you would have to go and buy it in the market, but since you have blown up, you can’t realistically do that, so I am, after all, your unsecured creditor and all this talk of security interests is a nonce.

Note that the Secured Party’s right to flog off the Pledgor’s asset evaporates should it commit an Event of Default, Early Termination Event or one of the 2016 NY Law VM CSA’s Specified Conditions but — courtesy of Paragraph 7(ii), the Secured Party’s right to call a default as a result of the Pledgor continuing to flog off its assets — there doesn’t seem to be an obligation to buy back assets once they’re sold, by the way — only kicks in after 5 Local Business Days, by which stage even the guys disconsolately wandering around outside the office clutching Iron Mountain boxes will have pushed off.

Note the odd coda: references to Posted Collateral (VM) etc — should be deemed to assume you still own it, even though if you don’t? This is the dead giveaway here. This may be an attempt to avoid having to create an “Equivalent Credit Support” concept, though since ISDA’s crack drafting squad™ went full metal jacket on that enterprise as long ago as in the 1995 CSA, it is not like we don’t have suitable, road-tested — if a little anal — language.

Oh, what sad times we live in.

See also

• Rehypothecation
• Title transfer collateral arrangement