Presentation on the
ISDA and CSA
to
The Forex Association of India
6th April 2013
Single Agreement
Master Agreement
Schedule
Confirmations
CSA
Paragraph 11
Single
Agreement
CSA and other collateral
 Collateral is by the Party itself
 Benefits
• No separate invocation required
• No separate calculation required (pledge of
shares)
Netting
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
(Bilateral) Netting for Derivatives
ISDA MASTER AGREEMENT
Payment Netting (2(c)) Close out netting
(6(e))
 On termination
 Same Currency
 Netting of all
 Same Transaction
o/s amounts
Multiple
payable under
transactions by
ISDA Master
election
Agreement
 During Life of
transaction
Set-Off (6(f))
 On termination
 Netting net
amounts under
ISDA with all
other amounts
 Same capacity
Payment Netting
As per the ISDA Master Agreement
Gross: Rs.100/-
PARTY
A
Net: Rs.75/-
PARTY
B
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)
Close-out netting
Rs.8/Swap 1
Rs.5/-
PARTY A
Swap 2
PARTY B
Rs.10/Swap 3
Note: Amounts refer to MTM values on close-out, not to payments due
If Close-out netting is enforceable
PARTY A
Rs.3/(net)
Party A has to pay Rs. 3/- to Party B’s insolvency trustee
PARTY B
If Close-out netting is not enforceable
Rs.13/-
PARTY A
PARTY B
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/-
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?
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
Understanding why “the CSA”
EXPOSURE
Kinds of Collateral
 Indian Government Securities
 Indian Corporate Bonds
 Cash

FX

INR
 Foreign Government Securities
 Foreign Debt Securities
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
CSA Issues
 Credit Risk on Collateral Taker
 Operational feasibility
 Perception-Netting will not be enforceable 
 Negotiation may
changing) 
be a tedious process
 Re-characterisation risk in certain jurisdictions
(but
Its been a pleasure!
Thank you