Valuation Date - CSA Provision

From The Jolly Contrarian
Jump to navigation Jump to search

1995 ISDA Credit Support Annex (English Law)
A Jolly Contrarian owner’s manual

Resources and navigation

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 the ᐅ to expand:

Paragraph Valuation Date in a Nutshell
Use at your own risk, campers!

Valuation Date” is specified in Paragraph 11(c)(ii).
view template

Full text of Paragraph Valuation Date

Valuation Date” means each date specified in or otherwise determined pursuant to Paragraph 11(c)(ii).
view template

Related agreements and comparisons

Related Agreements
Click here for the text of Section Valuation Date in the 2016 English Law VM CSA
Click here for the text of Section Valuation Date in the 1994 New York law CSA
Click here for the text of Section Valuation Date in the 2016 New York law CSA
Comparisons
1995 English Law CSA and 2016 English law VM CSA: click for comparison
Template:Oldcsadiff Valuation Date
Template:Nycsadiff Valuation Date
Template:2nycsadiff Valuation Date

Get in touch
Comments? Questions? Suggestions? Requests? Insults? We’d love to hear from you.
Sign up for our newsletter

Content and comparisons

Whereas the 1995 version is kind of laissez faire — yo, dudes, put whatever you like in the elections para, you know — because a credit support annex back then was a bit of a wheeze, and no-one really understood it — in the intervening 21 years ISDA’s crack drafting squad™ got all nudgy. So they say “every business day” unless you specify something else and, like, you are not going to specify something else, are you, because regulatory rules say it has to be every day.

Note also the introduction in 2016 of a Valuation Date Location: each party gets to choose one, being its own hometown. If you’re off dancing the maypole, or whatever collective cultural tradition you follow in your part of the world (In the Czech Republic, I am told, at Easter the boys chase the girls round the kitchen table with riding crops. Which sounds kind fun), then you should have no fear you’ll get called on to make a collateral transfer.
Template

Summary

You might expect Valuation Date to be stipulated in Paragraph 11 as “any Local Business Day”.

Timing of transfers under a CSA

This is how the timing works for CSA transfers. Remember the Valuation Agent is simply the person making the demand. Terminology check: to make this easy we refer to both Delivery Amounts and Return Amounts as “Transfer Amounts”. The date on which someone actually demands a Transfer Amount we call a “Demand Date”.

Valuation of Exposure and Credit Support Balance: Firstly, you must value what you are going to call, which wiull be the Transfer Amount under para 2(a) or 2(b). This is roughly Credit Support Balance - Exposure (or vice versa).

Per para 2(a) the Transferor will transfer Eligible Credit Support having a Value equal to the Transfer Amount as of the date of transfer. Under the Calculations provision all calculations happen at the relevant Valuation Time. Fluctuations in value after that time won’t invalidate the Transfer Amount, but they may mean a party can immediately call for more Credit Support (that is, have another Demand Date). The Valuation Time in turn keys off the Valuation Date.[1]

Demand Date: On any date that is (or promptly follows) a Valuation Date[2] in which the Exposure has moved in its favour, one party may demand a Delivery Amount[3] or a Return Amount.[4]

Transfer Date: Under para 3(a) (Transfers) if the Demand Date is a Local Business Day and demand is received before the Notification Time, the transfer must be made not later than close of business on the related Regular Settlement Day.[5] If received after the Notification Time (or at any time on a non-Local Business Day), the transfer must be made by close of business on the Regular Settlement Day relating to the day[6] after the Demand Date.

Settlement Day: Here is where things differ materially between the 1995 English Law CSA and the 2016 English law VM CSA.
1995 English Law CSA: The Settlement Day for any day (whether or not it is a Local Business Day) is:

  • Cash: for cash, the next Local Business Day and,
  • Securities: for securities, the Local Business Day after the date on which a trade in the relevant security, if effected on the day in question, would have been settled in accordance with customary practice.

2016 English law VM CSA: In the new world we have the new concept of the Regular Settlement Day, and this is the same Local Business Day as the Demand Date. The run-off text at the end of Paragraph 3(a) gives you a little more flex: if the demand came after the Notification Time, then you must make the transfer by close on the Regular Settlement Day for the next day.[7]


Questions

Demand Date not a Local Business Day: What if the Demand Date is not a Local Business Day? E.g., what if it is received after the Notification Time on a Friday, meaning the Settlement Day takes place on the date on which a trade, effected on a Saturday, would have been settled in accordance with customary practice?

  • Securities: For securities this is ok: a trade effected on a non-business day would be deemed to be effected on the next following Local Business Day anyway, so it would pick this up.
  • Cash: For cash, not so clear.

What happens if the transferred credit support changes in value on the Settlement Day?

What happens to Exposures if the Settlement Day is a long time after the Demand Date?[8] Is the demand, if answered with irrevocable instructions to deliver, treated as having been met, or does the Exposure stay outstanding until the collateral actually comes in? The answer (counterintuitive, given that the Transferee remains subject to the credit exposure during this time) is YES, thanks to the definitions of Delivery Amount and Return Amount, both of which include the words:

“...the Value as of that Valuation Date of the Transferor’s Credit Support Balance (adjusted to include any prior Delivery Amount and to exclude any prior Return Amount, the transfer of which, in either case, has not yet been completed and for which the relevant Settlement Day falls on or after such Valuation Date).”

What if I have to pay out a Transaction termination amount which the counterparty is already holding all or some of by way of variation margin? Since it will owe me that back, we can just off set those and call it quits, right? Wrong. See our separate article on that issue.
Template

See also

Template:M sa 1995 CSA Valuation Date
Template

References


CSA Anatomy


11(c)(ii) Eligible Credit Support (VM): Subject to Paragraph 9(e), if applicable, and each Credit Support Eligibility Condition (VM) applicable to it specified in Paragraph 11, if any, the following items will qualify as “Eligible Credit Support (VM)” for the party specified (as the Transferor):


Party A Valuation Percentage Party B Valuation Percentage
(A) Cash in an Eligible Currency [...] [...]% [...] [...]%
(B) Other [...] [...]% [...] [...]%

(View Template)

11(d)(ii)Valuation Date” has the meaning specified in Paragraph 10, unless otherwise specified here: ...
For purposes of determining the Valuation Date and clause (iii) of the definition of “Local Business Day” in Paragraph 10, “Valuation Date Location[9] means, with respect to each party, each city, region or country specified below:

Party A: ...................................................
Party B: ...................................................

(View Template)

Resources Full wikitext | Nutshell wikitext
English Law | 1 Interpretation | 2 Credit Support Obligations | 3 Transfers, Calculations and Exchanges | 4 Dispute Resolution | 5 Transfer of Title, No Security Interest, Distributions and Interest Amount | 6 Default | 7 Representation | 8 Expenses | 9 Miscellaneous | 10 Definitions | 11 Elections and Variables · Base Currency and Eligible Currency · Credit Support Obligations · Valuation and Timing · Exchange Date · Dispute Resolution · Distributions and Interest Amount · Addresses for Transfers · Credit Support Offsets · Other CSA
2018 ISDA Credit Support Deed for Initial Margin

Index: Click to expand:
CSA

Get in touch
Comments? Questions? Suggestions? Requests? Insults? We’d love to hear from you.
Sign up for our newsletter


  1. Under the 1995 English Law CSA you may specify either close of business on the Valuation Date or the Local Business Day immediately before it. Under the 2016 English law VM CSA you have flexibility to determine the Valuation Time as at the point you your book each day.
  2. It need not be a Local Business Day.
  3. Under para 2(a).
  4. Under para 2(b).
  5. The “Settlement Day” under the 1995 English Law CSA is slightly different.
  6. Note: ordinary day, not Local Business Day
  7. Just how the business days interact under the ISDA and CSA is about as complicated as string theory, by the way. For a cheat’s guide, see How business days work under the CSA. You’re welcome!
  8. As it may well be, under a 1995 English Law CSA, if the collateral is corporate bonds held in a clearing system
  9. If applicable, a party can specify more than one Valuation Date Location.