1. Presentation on the ISDA and CSA to The Forex Association of India 6th April 2013

2. Single Agreement Master Agreement Schedule Single Agreement
Confirmations
CSA
Paragraph 11

3. CSA and other collateral
Collateral is by the Party itself
Benefits
No separate invocation required
No separate calculation required (pledge of shares)

4. Payment netting - Netting during the course of transactions
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
Where... mutual dealings:
… account shall be taken…
sum due from one … shall be set-off …. against … sum due from the other …. and
the balance …. shall be claimed or paid

5. (Bilateral) Netting for Derivatives
ISDA MASTER AGREEMENT
Payment Netting (2(c))
Same Currency
Same Transaction
Multiple transactions by election
During Life of transaction
Close out netting (6(e))
On termination
Netting of all o/s amounts payable under ISDA Master Agreement
Set-Off (6(f))
On termination
Netting net amounts under ISDA with all other amounts
Same capacity

6. Payment Netting PARTY A PARTY B As per the ISDA Master Agreement
Gross: Rs.100/-
PARTY A
PARTY B
Net: Rs.75/-
Gross: Rs.25/-
Note: payment netting applies to payments:
on the same day
in the same currency
In respect of the same Transaction UNLESS parties elect “Multiple Transaction Payment Netting” to apply (part 4(i) of the Schedule)

7. Close-out netting PARTY A PARTY B Rs.8/- Swap 1 Rs.5/- Swap 2 Rs.10/-
Note: Amounts refer to MTM values on close-out, not to payments due

8. If Close-out netting is enforceable
PARTY A
PARTY B
Rs.3/-
(net)
Party A has to pay Rs. 3/- to Party B’s insolvency trustee

9. If Close-out netting is not enforceable
PARTY A
PARTY B
Rs.13/-
Rs.10/-
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/-

10. What’s so different about collateral for derivatives?
Why the CSA?
What’s so different about collateral for derivatives?
In any event:
Why not use good old pledge / security creation documentation?
Why complicate life with the CSA?

11. 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

12. Understanding why “the CSA”
EXPOSURE

13. Kinds of Collateral Indian Government Securities
Indian Corporate Bonds
Cash FX
INR
Foreign Government Securities
Foreign Debt Securities

14. CSA - Cash If INR - If FX – FEMA Permissions 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

15. 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

16. Its been a pleasure! Thank you