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

From The Jolly Contrarian
Revision as of 17:37, 8 January 2020 by Amwelladmin (talk | contribs)
Jump to navigation Jump to search
2016 NY VM CSA Anatomy™


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 1995 English Law CSA
Click here for the text of Section 6(c) 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
There is no equivalent provision in either version of the English Law title-transfer CSA.
{{nycsadiff {{{3}}}}}

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 you have the right to sell my asset, absolutely, to anyone else you want to, at any time, or actually, damn the torpedoes, hold it in your own name. Whereupon my claim against you is for the return of an asset you don’t 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 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

Retrieved from "https://jollycontrarian.com/index.php?title=Use_of_Posted_Collateral_(VM)_-_NY_VM_CSA_Provision&oldid=36795"