presentation on the presentation on the isda and csa to the forex association of india 6 th april...
TRANSCRIPT
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Presentation on the Presentation on the
ISDA and CSA
to
The Forex Association of India6th April 2013
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Single Agreement
Master Agreement
Schedule
Confirmations
Single
AgreementCSA
Paragraph 11
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CSA and other collateral
Collateral is by the Party itself Benefits • No separate invocation required• No separate calculation required (pledge of
shares)
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Netting is a particularisation of the
principle of mutual dealings and set off
Payment netting - Netting during the
course of transactions
Close out netting - Netting post closing
out (terminating) the transactions
Netting
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(Bilateral) Netting for DerivativesISDA MASTER AGREEMENT
Payment Netting (2(c))
Same CurrencySame TransactionMultiple transactions by electionDuring Life of transaction
Close out netting (6(e))On terminationNetting of all o/s amounts payable under ISDA Master Agreement
Set-Off (6(f))
On terminationNetting net amounts under ISDA with all other amountsSame capacity
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Payment Netting
PARTY A
PARTY A
PARTY B
PARTY B
Note: payment netting applies to payments:on the same dayin the same currencyIn respect of the same Transaction UNLESS parties elect “Multiple
Transaction Payment Netting” to apply (part 4(i) of the Schedule)
Gross: Rs.100/-
Net: Rs.75/-
Gross: Rs.25/-
As per the ISDA Master Agreement
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Close-out netting
PARTY APARTY A
Swap 1
PARTY BPARTY B
Rs.8/-
Swap 2
Swap 3
Rs.10/-
Rs.5/-
Note: Amounts refer to MTM values on close-out, not to payments due
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If Close-out netting is enforceable
PARTY APARTY A PARTY BPARTY BRs.3/-(net)
Party A has to pay Rs. 3/- to Party B’s insolvency trustee
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If Close-out netting is not enforceable
PARTY APARTY A PARTY BPARTY B
Rs.13/-
Party A has to pay Rs.13/- to Party B’s insolvency trustee.Party A has to file a proof of debt in Party B’s insolvency to claim Rs.10/-
Rs.10/-
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Why the CSA?
What’s so different about collateral for
derivatives?
In any event:
(i) Why not use good old pledge / security creation
documentation?
(ii) Why complicate life with the CSA?
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CSA - Title Transfer - How it works?
Outright transfer of cash and securities
Conditional obligation to repay cash and re-deliver
fungible securities
Re-delivery obligation
becomes debt obligations
on default
Exposure netted against
the collateral value
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Understanding why “the CSA”
EXPOSURE
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Kinds of Collateral
Indian Government Securities
Indian Corporate Bonds
Cash FX
INR
Foreign Government Securities
Foreign Debt Securities
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CSA - Cash
If INR -
Deposit Regulations
• Where the Bank is the recipient of collateral
• Where the corporate counterparty is the recipient of
collateral
Risk of Re-characterization
• No intention of creating security interest
• Transferee free to deal with collateral
If FX – FEMA Permissions
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CSA Issues
Credit Risk on Collateral Taker
Operational feasibility
Perception-Netting will not be enforceable
Negotiation may be a tedious process (but
changing)
Re-characterisation risk in certain jurisdictions
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Its been a pleasure!Its been a pleasure!
Thank youThank you
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