- Credit Support Annex
A Credit Support Annex, or CSA, is a legal document which regulates credit support (collateral) for derivative transactions. It is one of the four parts that make up an ISDA Master Agreement but is not mandatory. It is possible to have an ISDA agreement without a CSA but normally not a CSA without an ISDA.
A CSA defines the terms or rules under which collateral is posted or transferred between swap counterparties to mitigate the credit risk arising from "in the money" derivative positions.
If on any Valuation Date, the Delivery Amount equals or exceeds the Pledgor's Minimum Transfer Amount, the Pledgor must transfer Eligible Collateral with a Value at least equal to the Delivery Amount. The Delivery Amount is the amount the Credit Support Amount exceeds the Value of all posted Collateral held by the Secured Party. The Credit Support Amount is the Secured Party's Exposure plus Pledgor's Independent Amounts minus Secured Party's Independent Amounts minus the Pledgor's Threshold. The Collateral must meet the Elibibility criteria in the agreement, e.g. which currencies it may be in and what types of bonds are allowed, and the Value will take account of haircuts. There are also rules for the settlement of disputes arising over valuation of derivative positions.
To distinguish between the Schedule to the Master Agreement and the Credit Support Annex, the schedules are numbered as Parts and CSA are numbered as Paragraphs. To customise the requirements of an OTC Transaction, the clauses which are required are added as Paragraph 11 (for London Agreements) and as Paragraph 13 (for New York Agreements).
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