Obligations - NY CSA Provision

ISDA 1994 New York Law Credit Support Annex A Jolly Contrarian owner’s manual™ Go premium Overview — Summary — Premium — See also — Wikitext Crosscheck: →NY OG →Eng OG →NY VM →Eng VM →Eng IM Obligations in a Nutshell™ The JC’s Nutshell™ summary of this term has moved uptown to the subscription-only ninja tier. For the cost of ½ a weekly 🍺 you can get it here. Sign up at Substack. You can even ask questions! Ask about it here. Original text “Obligations” means, with respect to a party, all present and future obligations of that party under this Agreement and any additional obligations specified for that party in Paragraph 13. The varieties of ISDA CSA Subject 1994 NY 1995 Eng 2016 VM NY 2016 VM Eng 2018 IM Eng Preamble Pre Pre Pre Pre Pre Interpretation 1 1 1 1 1 Security Interest 2 - 2 - 2 Credit Support Obligations 3 2 3 2 3 Transfers, Calculations and Exchanges - 3 - 3 - Conditions Precedent, Transfer Timing, Calculations and Substitutions 4 - 4 - 4 Dispute Resolution 5 4 5 4 5 Holding and Using Posted Collateral 6 - 6 - 6 Transfer of Title, No Security Interest - 5 - 5 - Events of Default 7 6 7 6 7 Rights and Remedies 8 - 8 - 8 Representations 9 7 9 7 9 Expenses 10 8 10 8 10 Miscellaneous 11 9 11 9 11 Definitions 12 10 12 10 12 Elections and Variables 13 11 13 11 13 Resources and Navigation Index: Click ᐅ to expand: CSA

Comparisons

The text is the same between the 1994 NY CSA and the 2016 NY VM CSA.

Basics

Should you want your variation margin CSA to act as security for other obligations your counterparty may owe you, outside the terms of the ISDA, then here is where you make that quixotic request.

Quixotic why? Because variation margin is calculated — literally calculated, that is, not just forensically calculated — to have a value exactly equal to your counterparty’s net mark-to-market Exposure to you under the ISDA Master Agreement, so in the ordinary course, there will be more or less none of it left by the time it comes to recovering other debts owed by the same bankrupted counterparty.

Yes, yes, yes: I know: that the market may have moved and there might be some residual value in your Posted Collateral as a result, sure. It might be worth something on that far-off day when that one-in-a-million event happens and your client blows up.

But how much time will you have wasted in negotiation with the other nine-hundred and ninety nine thousand, nine hundred and ninety nine clients in the meantime, for the sake of a shot at a few thousand extra bucks?

So I expect it is unlikely people with much by way of common sense seek to add additional Obligations to their CSAs, but equally I have a strong feeling deep in my bones that some bloody-mindedly will.

Can we imagine, for example, unwilling negotiators being prodded into it by unsmiling credit officers, poking them in the back with a sharpened stick, deaf to the lack of practical value such a manoeuvre offers?

Yes. Yes, we can.

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