Valuation Date - CSA Provision

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

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

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

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

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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.
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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:

Demand Date
On any date, be it a Local Business Day or not, (call it a “Demand Date”, but note per 2(a) or 2(b) it must be made “on or promptly following a Valuation Date”), a party may demand a Transfer under para 2(a) (for a Delivery Amount) or 2(b) (for a Return Amount).

Valuation Time - Exposure
The point at which the valuation is made is the Valuation Time. This keys off the Valuation Date:

Valuation Time - Eligible Credit Support
Per para 2(a) the Transferor will transfer Eligible Credit Support having a Value equal to the Delivery Amount as of the date of transfer. Under the Calculations provision all calculations of Value happen at the relevant Valuation Time. Fluctuations in value in the credit support actually delivered 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).

Transfer Date
Under para 3(a) (Transfers) if the demand is received before the Notification Time on a Local Business Day) on that Demand Date, the transfer will be made not later than close of business on the related Settlement Day (under the 1995 English Law CSA) or Regular Settlement Day (under the 2016 English law VM CSA. If received after the Notification Time, or at any time on day that isn’t a Local Business Day), the transfer must be made by close of business on the Settlement Day/Regular Settlement Day relating to the day (note: ordinary day, not Local Business Day) after the Demand Date.

Settlement Day
Here is where things differ materially between the ’96 and the ’16 versions of the 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.[1]

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?[2] 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).”

This leads to some rather anomalous results.
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See also

Template:M sa 1995 CSA Valuation Date
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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[3] 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 ᐅ to expand:
CSA

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  1. 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!
  2. As it may well be, under a 1995 English Law CSA, if the collateral is corporate bonds held in a clearing system
  3. If applicable, a party can specify more than one Valuation Date Location.