Collateral Management

CHAPTER 22OTC Derivatives and Collateral – Legal Protection – Credit Support Annex

This chapter describes the purpose of the Credit Support Annex (CSA), its impact on collateral management, its typical content and its use on a day-to-day basis. This chapter is targeted at readers that have had no exposure or limited exposure to the legal documentation relating to OTC derivative trades. The CSA is the primary document used by collateral professionals on a day-to-day basis regarding margin calls resulting from exposures on OTC derivative trades.

Please note that the contents of this chapter represent the author’s own view of how the documentation produced by the International Swaps and Derivatives Association (ISDA) is normally used by financial institutions and is not an ISDA official guide of how to understand or to complete or to use such documentation. Readers are advised to take their own legal advice regarding the implementation and use of such documentation.

22.1 INTRODUCTION

A Credit Support Annex (CSA) is an addendum to the legal documentation signed between two parties that intend to execute OTC derivative trades with each other; it is effectively a procedural rulebook for the management of collateral between the two firms.

Its specific purpose is to document the terms and conditions under which the posting of collateral is to occur between the two parties. In most cases, such terms and conditions are applicable to both parties; this is known as a bilateral ...