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Credit Support Annex

 

The Credit Support Annex Guide provides our users with a complete online resource relating to the Credit Support Annexes published by ISDA and used with the ISDA Master Agreements, including articles on the Credit Support Annexes and sample provisions used by market participants to modify, supplement or amend the Credit Support Annexes standard terms. The following section ("Credit Support Annex - An Introduction) discusses the background of the Credit Support Annexes in general.

Detailed discussions relating to individual sections of the Credit Support Annexes (by Paragrah number under the English law CSA) are organised in the 2nd section ('Credit Support Annexes Section by Section Guide'). Access to the rest of the Credit Support Annexes Guide, including articles on individual sections of the Credit Support Annexes are subject to an annual paid subscription (currently USD100 p.a.).

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Credit Support Annex - An Introduction

The credit support annex or commonly called “CSA” is one of the key documents of a derivatives transaction documented under the ISDA Master Agreement published by the International Swaps and Derivatives Association, Inc. (“ISDA”).

Credit Risk

The credit support annex is an agreement used to manage counterparty credit risk and parties to a derivatives transaction use the credit support annex to provide for the posting of collateral to secure the performance of the parties under the ISDA Master Agreement. The credit support annex contains detailed (and complex) provisions relating to, inter alia:

(a) the calculation of the exposure of each parties;

(b) the posting and transfer of collateral; and

(c) the return of collateral.

Credit Support Annex Governing Law

ISDA published four credit support annexes governed by, respectively, New York law, Japanese law and English law. Parties wishing to manage the credit risk of the transactions under English law have the option of using a credit support annex or a credit support deed (we will use the term “credit support annex” in general in this article).

Parts and Paragraphs

Provisions in the Schedule to the ISDA Master Agreement are numbered as Parts whereas the in the CSA, the provisions are numbered as Paragraphs.

Elections

Parties to the ISDA Master Agreement may amend, supplement or make election in respect of the provisions in the CSA by specifying the amendments, supplements and elections in Paragraph 11 (English Law) or 13 (New York or Japanese Law).

The credit support annexes are structured quite similarly but there are slight differences in the Terminology used in each credit support annex. A comparison table is also provided by the website.

Transfer and Security Interest

The New York law form of CSA is a “security interest” form where possession of the collateral is maintained by the transfer and subject to a security interest granted to the counterparty. The English law form of CSA is a “transfer” form where the collateral is transferred to the counterparty (or an escrow agent) absolutely subject to an agreement to retransfer equivalent securities and it is not intended to create a security interest.

Credit Support Annex Collateral

Parties to the credit support annex may agree that certain collateral may be used under the credit support annex including cash, bonds, structured notes and other collateral.

Credit Support Annexes Section by Section Guide

Preamble to the Credit Support Annex

Credit Support Annex Preamble |

Paragraph 1 Interpretation

Paragraph 1 Interpretation |

Paragraph 2 Credit Support Obligations

Credit Support Obligations |
Security Interest under Paragraph 2 of New York Law and Japanese Law CSA |

Paragraph 3 Transfers Calculations and Exchanges

Tramsfers, Calculations and Exchanges |

Paragraph 4 Dispute Resolution

Dispute Resolution |

Paragraph 5 Transfer of Title, No Security Interest, Distributions and Interest Amount

Transfer of Title, No Security Interest, Distributions and Interest Amount |

Paragraph 10 Definitions

Value |

Paragraph 11 Elections and Variables

Dispute Resolution Value (Para. 11(e)(ii) | Interest Rate and Interest Amount Transfer (Para. 11(f)) | Other Provisions (Para. 11(h))

Other Credit Support Annex Articles

Credit Support Annex Comparison Table | ISDA Credit Support Annex Terminology |

CSA samples


derivativeslawyer.com

Last updated August 2012

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The above notes are intended to highlight issues and provide only general outlines and not intended to be comprehensive nor legal advice. Where applicable, the same should be read in conjunction with, and are qualified in their entirety by, the full provisions of the relevant ISDA provisions and definitions. They shall never be used in place of professional advice. We accept no responsibility for any loss arising from any action taken or not taken by anyone using this material or using this material in conjunction with any ISDA documentation in reliance thereof. If you have any question, please contact us.

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