ISDA Collateral Glossary Chinese Trans

8/8/2019 ISDA Collateral Glossary Chinese Trans

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ISDA International Swaps and Derivatives Association, Inc

ISDA Glossary of Collateral Terms- Chinese Translation -

ISDA--

First Edition January 2006

2006 1

Copyright 2006 by International Swaps and Derivatives Association, Inc

2006


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ISDA Glossary of Collateral Terms Chinese Translation Page 2 of 23First Edition January 2006

OBJECTIVES OF THE GLOSSARY OF COLLATERAL TERMSCHINESE TRANSLATION

The Glossary is intended to:

serve as an educational reference tool for collateral practitioners;

provide an overview of the key collateral terms used in the Credit Support Annex andCredit Support Deed as published by ISDA;

serve as a practical guide for collateral practitioners in relation to OTC derivatives tradesonly when the use of both English and Chinese languages are required.

ISDA

NOTE

For reference and further information, please also review the following collateral documents andreference materials as provided by ISDA:

1. 2005 ISDA Collateral Guidelines

2. ISDA Collateral Asset Definitions

3. ISDA Margin Surveys

4. Recommended Practices forPortfolio Reconciliation

5. 2001 ISDA Margin Provisions

6. Users Guide to 2001 ISDA MarginProvisions

7. 1995 ISDA Credit Support Annex

8. 1995 ISDA Credit Support Deed (SecurityInterest English Law)

9. 1994 ISDA Credit Support Annex (SecurityInterest New York Law)

10. Users Guide to the ISDA Credit SupportDocuments under English Law

11. Users Guide to the 1994 ISDA CreditSupport Annex

Please visit http://www.isda.org/publications/pubguide.html for further details on ISDA publications.


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IMPORTANT DISCLAIMERS

ISDA wishes to bring to the attention of all users of this Glossary of Collateral Terms - Chinese Translation (theGlossary) the following important warnings and disclaimers:

1. The precise documentation of each individual collateral agreement remains the responsibility of the partiesconcerned. ISDA assumes no responsibility for any use to which this Glossary may be put, including, without

limitation, any use of the Glossary in connection with any collateral agreement.

2. ISDA assumes no responsibility in relation to the suitability of the collateral terminology described in this

Glossary or the use to which the Glossary is put.

3. This document has been made available for educational and discussion purposes in relation to OTC

derivatives trades only. It does not constitute formal advice, and ISDA accepts no responsibility for errors,

omissions or inaccuracies.

4. All users of the Glossary are strongly advised to seek their own independent verification of all information

presented and to seek their own independent legal, tax, accounting and other advice as appropriate before

undertaking any form of collateral management activity.

5. This Glossary is provided as a practical guide for collateral practitioners in relation to OTC derivatives trades

only and has not been reviewed in detail by any legal advisors. Any inconsistencies within this Glossary or

with other ISDA documents should be brought to the attention of ISDA.

6. The Glossary may be subject to periodic revision and may be published exclusively online, so please checkthe ISDA website for updates.

ISDA ()

1. ISDA

2. ISDA

3. ISDA

4.

5.

ISDAISDA

6. ISDA


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Summary of Collateral Terms:

:

1. Base Currency 2. Call

3. Cash

4. Close Out

5. Collateral

6. Collateral Arrangement

7. Collateral Opinion

8. Collateralised Transactions

9. Credit Support

10. Credit Support Amount 11. Credit Support Annex

12. Credit Support Balance

13. CSA CSA14. Delivery Amount

15. Dispute Resolution

16. Distributions

17. Eligible Collateral

18. Eligible Credit Support

19. Eligible Currency

20. Event of Default

21. Exchange

22. Exposure

23. Haircut

24. Independent Amount

25. Initial Margin

26. ISDA Master Agreement / ISDA

27. Margin

28. Mark-to-Market

29. Master Agreement

30. Minimum Transfer Amount

31. Multi-branch Party

32. Netting

33. New Credit Support

34. Notification Time


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35. Original Credit Support

36. OTC

37. Outright Transfer

38. Paragraph 11 11

39. Paragraph 13 13

40. Perfection

41. Pledge

42. Pledgor

43. Pledgee

44. Posting

45. Provider

46. Reconciliation

47. Rehypothecation / Re-Use /

48. Return Amount

49. Resolution Time

50. Rounding Amount

51. Schedule

52. Set-off

53. Secured Party

54. Security Interest

55. Substitution

56. Termination Events

57. Threshold Amount

58. Title Transfer

59. Transferee

60. Transferor

61. Unpaid Amount

62. Valuation Agent

63. Valuation Date

64. Valuation Frequency

65. Valuation Percentage

66. Valuation Time


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Glossary of Collateral Terms A B1. Base Currency

This is the currency, specified in the

CSA, in which Margin Calls aremade. It is used to convert alltransaction and Collateral amountsinto a common currency.

Ideally the Base Currency shouldreflect the currency of the majority oftransactions or the terminationcurrency of the ISDA MasterAgreement. Typically the currencyused is either Euro or US Dollars.

ISDA

C

2. CallTo make a demand for Collateralfrom a counterparty.

3. Cash

Cash is the preferred form ofCollateral, because it is the mostliquid. However, it can causeproblems because Cash requires arate of return to be paid to theCollateral Provider. Manyinstitutions still find it awkward to

generate a return internally on smallovernight balances of Cash.

The overnight reference interestrates used for Cash Collateral aretypically:

Effective Federal Funds for USDEONIA for EuroSONIA for GBP SterlingReuters page AFMZ for AUD

A spread maybe subtracted from therate e.g. 25 basis points. When

subtracting such a spread it isimportant to recognise that this maydiscourage the Collateral Providerfrom Posting Cash.

EONIA

SONIA

AFMZ

25


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4. Close Out

To terminate the transactions undera derivatives agreement. Close Outcan affect one, several or all

transactions, depending on theevent that triggers the Close Out.

See Netting.

5. Collateral

(i) Cash in any currency;(ii) securities of any kind;and(iii) any asset commonly used asCollateral.

(i)

(ii)

(iii)

6. Collateral Arrangement

Any Margin, Collateral or securityarrangement or other creditenhancement related to a Nettingagreement entered into, including(without limitation):(i) a Pledge or any other form ofSecurity Interest in Collateral;(ii) a security arrangement based onthe transfer of title to Collateral,whether by outright sale or by way ofsecurity, including (without limitation)a sale and repurchase agreement oran irregular Pledge; and

(iii) any guarantee, letter of credit orreimbursement obligation by or to aparty to one or more qualifiedfinancial contracts, in respect ofthose qualified financial contracts.

()

(i)

(ii)

()

(iii)

7. Collateral Opinion

A Collateral Opinion is oftenobtained from external legal counselto discuss whether CollateralArrangements are enforceable in aparticular jurisdiction. ISDA providesCollateral Opinions for its memberson more than 35 jurisdictions.Similarly, ISDA provides legalopinions on the enforceability ofclose-out Netting.

ISDA 35

ISDA


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8. Collateralised Transactions

Many firms cannot collateralise allproducts and offices/ branchescovered by their ISDA Master

Agreement, so it is important tospecify precisely any sub-set oftransactions to be covered by theCSA.

This is typically done by definingproduct types e.g. interest rateswaps and branches e.g. London,Paris, New York to be included inthe CSA, in the Amendment to theISDA Master Agreement that linksthe CSA to the ISDA MasterAgreement. It may also be definedin the CSA itself.(Some firms will also list productsthat are to be excluded from theCSA.)

ISDA

ISDA ISDA

9. Credit Support

The term used in ISDAdocumentation for all forms of creditrisk mitigation techniques.

ISDA

10. Credit Support Amount

The Transferees Collateral

requirement, based on the value ofall Collateralised Transactionsadjusted for any ThresholdAmountorIndependent Amount.

11. Credit Support Annex - CSA

The CSA describes the terms of thecollateralised relationship betweenthe two parties. It includes legal,operational and credit provisions.

ISDA provides 2 CSAs. The first,NY law CSA, creates a Security

Interest/Pledge. The second,English law CSA, creates a TitleTransfer.

- CSA

ISDA

/

12. Credit Support Balance

The total value of Collateral held bythe exposed party, after anyHaircuts.


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13. CSA

See Credit Support Annex.

CSA

D

14. Delivery AmountThe amount of Collateral required tosatisfy a Collateral Call.

15. Dispute Resolution

The process of either agreeing orrevaluing the portfolio or Collateralwhen a party disputes the calculatedDelivery Amount, Return Amount orCredit Support Balance.

16. Distributions

Amounts transferred by the

(Collateral) Transferee to theCollateral Provider, of equivalentvalue to coupons arising fromsecurities held by the Transferee.

E17. Eligible Collateral

Eligible Collateral is a term used inthe NY law CSA, and has the samemeaning as EligibleCredit Supportin the English law CSA. It is theCollateral (Cash and securities) that

both parties to the CSA have agreedto accept to satisfy Collateraldemands.

18. Eligible Credit Support

It is the Collateral (Cash andsecurities) that both parties to theCSA have agreed to accept tosatisfy Collateral demands.

19. Eligible Currency

An additional currency ( which caninclude the BaseCurrency) that

parties agree can be used asCollateral as well. Parties need toinclude the Eligible Currency underEligibleCredit Support if they wish toinclude Cash as Eligible Collateral.

(

)


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20. Event of Default

Any event nominated under theISDA Master Agreement whichallows a party to Close Out the

Master Agreement, all underlyingtrades and the attached CSA.

ISDA

ISDA

21. Exchange

An Exchange of Collateral that hasalready been posted, for anotherform of Eligible Credit Support ofequal value. This term is specific tothe English Law CSA (TitleTransfer).

See Substitution.

22. Exposure

The Mark-to-Market value of allcollateralised trades.

F H23. Haircut

A Haircut may be applied toCollateral held to give theTransferee additional protection froma fall in the value of the Collateralheld during the Close Out period.

The size of the Haircut is usuallybased on the volatility of thesecurity, the expected holding periodand market liquidity.

The term Haircut is widely used bypractitioners although ISDAdocumentation refers to ValuationPercentage. Valuation Percentageindicates what percentage of theactual market value of the asset willbe used to calculate the valueallowed for Credit Support e.g. 95%.

A Haircut would indicate whatpercentage to reduce the value bye.g. 5%. This is a term used in therepo markets.

ISDA

95%

5%)


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I24. Independent Amount

This means an additional Collateralrequirement independent of the

Exposure. Independent Amountsare included in the Credit SupportAmount to determine the overallCollateral requirement. This meansthat if the party holding theIndependent Amount is far out-of-the-money, it may have to return it.As the Exposure moves back in-the-money, the Independent Amount isagain posted.

Parties may elect to modify the

Credit Support language tosegregate the Independent Amountfrom the Exposure calculation,ensuring it is always posted with oneparty, regardless of Exposure.

Independent Amounts may be tradespecific or portfolio based andtypically calculated as a percentageof notional. Some firms use VaRtechniques. Independent Amountsare sometimes only activated by acredit event such as a rating

downgrade or the fall in net assetvalue of a fund.

(VaR)

25. Initial Margin

See Independent Amount.

26. ISDA Master Agreement

The document governing most crossborder and domestic privatelynegotiated OTC derivative tradingrelationships.

ISDA

J M

27. MarginSee Collateral.

28. Mark-to-Market

The present value of a transaction(s)based on current market rates.


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29. Master Agreement

An umbrella agreement governing agroup of transactions.

See ISDA Master Agreement.

ISDA

30. Minimum Transfer Amount - MTA

The MTA is an amount designed toreduce frictional costs associatedwith moving small amounts ofCollateral back and forth. Hence areasonably large MTA is preferred toprevent frequent Collateralmovements. With a larger portfolio,counterparties might consider abigger MTA since it will beincreasingly difficult and timeconsuming to reconcile and resolvesmall differencesor counterpartiesmight adjust the Rounding Amountto reduce the number ofreconciliations of larger portfolios.

The MTA may add another level ofExposure that should be taken intoconsideration when assessingsuitable ThresholdAmounts.

- MTA

31. Multi-branch Party

The ISDA Master Agreement willstipulate which branches areincluded in the agreement. In theCSA you can elect the branches youwish to include for Collateralpurposes, as a sub-set of thebranches included in the ISDAMaster Agreement. For example,you may not be able to receive dailyMark-to-Market positions from acertain branch due to operationalrestraints, and may therefore elect to

exclude trades from the Collateralagreement transacted by thatbranch.

ISDA

ISDA


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N32. Netting

Close-out Netting is the ability, undera Master Agreement e.g. ISDA

Master Agreement, to Close Out aportfolio of transactions by offsettingthe trades in which you owe moneyto your counterparty against thosethat your counterparty owes youmoney.

You should seek legal advice todetermine whether the relevantcourts would uphold such a positionin the event of your counterpartysinsolvency. (The risk being that you,

as the solvent party, will be requiredto meet your commitments on tradeswhere you owe your counterparty,but they will not pay you.)

See Collateral Opinion

ISDA

(

)

33. New Credit Support

The Collateral that the Providertransfers to the Transferee to initiatean Exchange for the OriginalCreditSupport.

34. Notification Time

The deadline for a Collateral Call orto request a return of Collateral.

The CSA provides that if notificationof a Collateral Call is received by theNotification Time, Collateral has tobe transferred by the next localbusiness day, subject to standardsettlement conventions.

O35. Original Credit Support

In an Exchange, Collateral that theTransferee returns to the Providerupon receiving the New CreditSupport.


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36. OTC -Over The Counter

Privately negotiated transactions, asopposed to standardised on an stockexchange, include most off-balance-

sheet instruments, such as interestrate swaps and options and currencyswaps and options.

37. Outright Transfer

A method of Collateral transfer inwhich full legal title of the assets istransferred. If Exposure decreases,the Transferee is obliged to returnequivalent Collateral.

Compare Pledge.

P

38. Paragraph 11

The final paragraph of the EnglishLaw ISDA CSA containing allelections and variables many ofwhich must be completed.Paragraph 11 is similar by way offormat to the Schedule to the ISDAMaster Agreement.

11 ISDA

11 ISDA

39. Paragraph 13

The final paragraph of the NY lawISDA CSA containing all elections

and variables many of which mustbe completed. Paragraph 13 issimilar by way of format to theSchedule to the ISDA MasterAgreement.

13 ISDA

13 ISDA

40. Perfection

Perfecting a Pledge is a procedurethat ensures courts in a givenjurisdiction recognise a Pledge. Theprocedure differs from onejurisdiction to another, but may

involve registering the Pledge with apublic official.

Non-perfected Security Interest inmost jurisdictions would result in theSecurity Interest being void andunenforceable.


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41. Pledge

A method of passing Collateraltransfer in which a SecurityInterestin Collateral is created. The

Collateral Provider, the Pledgor,retains the legal ownership of theassets. The Collateral Pledgee hasthe right to keep the assets in theEvent of Default by the CollateralProvider.

42. Pledgor

Under a NY law CSA, the partygiving the Collateral; the CollateralTransferee being the SecuredParty.

,

43. PledgeeUnder a NY law CSA, Collateralgranted by the Pledgor over itsproperty to another, the Pledgee.

,

44. Posting

Posting Collateral is a termassociated with the NY law CSA, butstill widely used to indicate aCollateral transfer.

45. Provider

The unexposed party. Referred toas Transferor in the English law CSAand Pledgor in the NY law CSA andother Pledge documentation.

Q R46. Reconciliation

A trade-by-trade comparison whichallows two parties to agree on thenumber of transactions and theirmark to market value.

47. Rehypothecation / Re-Use

This allows a Pledgee under aPledge agreement (Pledgee) to re-use Collateral received.

/


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48. Return Amount

In cases where the Transferee holdsexcess Collateral, the Provider maydemand the return of this excess

Collateral such that the value ofCollateral held (Credit SupportBalance) again equals the Exposureto be collateralised (CreditSupportAmount).

49. Resolution Time

The deadline for resolution of adispute following consultationbetween the parties. The CSAprovides for a Dispute Resolutionmechanism if the parties fail to solve

a dispute by the Resolution Time.See Dispute Resolution.

50. Rounding Amount

The process of rounding theCollateral transfer amounts up ordown to incremental levels specifiedin the Collateral agreement. Forexample, if an agreement specifiesan increment of US$10,000 and thecalculated Delivery Amount isUS$275,000, the amount is rounded

up to US$280,000, the nearestmultiple of US$10,000.

Rounding Amounts are set tofacilitate the operational aspects ofmanaging Collateral agreements.Market standard is for DeliveryAmounts to be rounded up withReturn Amounts rounded down.

A small Rounding Amount, to say10,000 equivalent, is fairly standardmarket practice and has no real

impact on credit utilisation.

10,000

275,000

10,000

280,000

10,000


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S51. Schedule

An attachment to the ISDA MasterAgreement, which contains the

variable nominations andamendments (or elections andvariables) to the ISDA MasterAgreement. It allows the parties tocustomise the agreement.

See also Paragraph 11 andParagraph 13.

ISDA

ISDA

1113

52. Set-off

The discharge of oppositeobligations to the extent of thesmaller obligation; a right to Set-off

may exist generally at law or byagreement between the parties(contractual Set-off); Netting has thesame commercial result but may beachieved in different ways.

(

)

53. Secured Party

Under the NY law CSA, the exposedparty that takes in Collateral.Referred to as Transferee in theEnglish law CSA and Pledgee in theNY law CSA and other Pledge

documentation.

54. Security Interest

The method of creating a lien overCollateral. If the Pledgor fails tomeet its obligations, the securitiescan be sold and the proceeds usedby the Pledgee to offset any losses.


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55. Substitution

The Substitution of Collateraldelivered for another piece ofCollateral, of at least equal market

value. Sometimes a party wants toget an asset back that it hasdelivered as Collateral. It may haveto return it to where it was borrowedfrom, or it may have a better use forit. The Collateral Provider, orPledgor, requests that the Pledgeeswitches Collateral it holds for adifferent agreed type. The CSAgives explicit guidelines of when theparties have to make their Collateralmoves. New Collateral always has

to be delivered before the Collateralto be substituted has to be returned.The Secured Party has to be able tosatisfy itself that the new asset is inits control, and is of sufficient marketvalue.

This is a NY law CSA term. Theequivalent term in the English LawCSA is Exchange.

(Exchange)

T56. Termination Events

Under the ISDA Master Agreement,events beyond the control of a partythat allow for Close Out of either thetransactions affected by the event orthe entire portfolio.

ISDA


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57. Threshold Amount

This is a specified amount of currentExposure that the Collateral Provideris not required to secure by Posting

Collateral. It reflects the unsecuredExposure that a party will takeagainst its counterparty

For example, if the net valuation of aportfolio of trades outstandingbetween two parties was Euro 11M,but a Threshold of Euro 5M wasspecified, the Collateral requirementwould be Euro 6M.

If the Exposure fluctuates above thethreshold, Collateral will be moved to

reflect the Exposure less thethreshold.

Thresholds are usually either set atzero, a fixed level or linked to eachpartys credit rating.

1100 500

600

58. Title Transfer

A Collateral Arrangement based onthe transfer oftitle to Collateral by outright sale.

See also Outright Transfer.

59. Transferee

The exposed party, or the partytaking in Collateral as defined in theEnglish law CSA. Referred to asPledgee in the NY law CSA andother Pledge documentation.

60. Transferor

The unexposed party or CollateralProvider as defined in the Englishlaw CSA. Referred to as Pledgor in

the NY law CSA and other Pledgedocumentation.


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U61. Unpaid Amount

Under the ISDA Master Agreement,an Unpaid Amount that should have

been paid before Close Out waseffected. Under the English LawCSA, the Collateral held is alsodeemed an Unpaid Amount.

ISDA

V62. Valuation Agent

The Valuation Agent is the partyresponsible for calculating theDelivery and Return Amounts andnotifying the other party. TheValuation Agent may be either party,

or both parties.The market standard is that, on anygiven Valuation Date, the partycalling for Collateral is the ValuationAgent, while the exposed party is theValuation Agent during DisputeResolutions. Parties to anagreement, however, may nominatea party as the sole Valuation Agent.That party then takes responsibilityfor notifying of deliveries and returnsof Collateral for both parties.

63. Valuation Date

A date on which transactions arevalued for Collateral purposes. In themajority of agreements, eachbusiness day is a Valuation Date.

This determines the frequency ofMargin calling. Daily valuation isstrongly preferred.

64. Valuation Frequency

The Valuation Frequency is

determined by the Valuation Dateand means how often a Margin Callcan be made by parties.


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65. Valuation Percentage

Valuation Percentage commonlyreferred to as Haircut - may beapplied to Collateral held to give the

(Collateral) Transferee additionalprotection from a fall in the value ofthe Collateral held during the CloseOut period. It indicates whatpercentage of the actual marketvalue of the asset will be used tocalculate the value allowed for CreditSupportBalance e.g. 95%. (AHaircut would indicate whatpercentage to reduce the value bye.g. 5%.)

The size of the ValuationPercentage is usually based on thevolatility of the security, the expectedholding period and its marketliquidity. A typical ValuationPercentage range for G10government bonds would be:

Government bonds with a remainingmaturity less than one year: 98%With a remaining maturity greaterthan one, but less than 10 years:95%

With a remaining maturity greaterthan 10, but less than 30 years:90%

Cash normally has a ValuationPercentage of 100%.

95%

5%

G10

G10

98%

95%

90%

100%

66. Valuation Time

The Valuation Time is the time atwhich the Valuation Agent mustMark to Market the transactions andvalue any Collateral. Typically, theValuation Time is the close of

business in the relevant market onthe local business day immediatelypreceding the Valuation Date.

W Z


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ACKNOWLEDGEMENTS

The Glossary of Collateral Terms Chinese Translation was complied by a workinggroup organized under the auspices of ISDAs Asia-Pacific Collateral Committee.ISDA greatly appreciates and thanks these member firms who provided assistanceto this project:

ABN Amro Bank N.V.Allen & OveryBarclays CapitalBank of AmericaChina Development BankCitibank N.A.Commonwealth Bank of AustraliaDBS Bank

HSBC Holdings PlcJP Morgan ChaseStandard Chartered BankUBS AGUnited Overseas Bank

For further information please contact ISDAs Asia-Pacific Office ([email protected]).


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ISDA International Swaps and Derivatives Association, IncINTERNATIONAL SWAPS AND DERIVATIVES ASSOCIATION, INC.

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#22-00 Clifford CentreSingapore 048621Phone: +65 6538 3879Fax: +65 6538 6942

Website: http://www.isda.orgEmail: [email protected]

ABOUT ISDA

The International Swaps and Derivatives Association, Inc. (ISDA) is the global tradeassociation representing participants in the privately negotiated derivatives industry, a

business covering swaps, and options across all asset classes (interest rate, currency,commodity, energy, credit and equity). ISDA was chartered in 1985, and today numbers over670 member institutions from 47 countries on six continents. These members include mostof the worlds major institutions who deal in, as well as leading end-users of, privatelynegotiated derivatives. The membership also includes associated service providers andconsultants.

Since its inception, ISDA has pioneered efforts to identify and reduce the sources of risk inthe derivatives and risk management business. Among its most notable accomplishmentsare: developing the ISDA Master Agreement; publishing a wide range of relateddocumentation materials and instruments covering a variety of transaction types; producinglegal opinions on the enforceability of netting and collateral arrangements (available only toISDA members); securing recognition of the risk-reducing effects of netting in determiningcapital requirements; promoting sound risk management practices, and advancing the

understanding and treatment of derivatives and risk management from public policy andregulatory capital perspectives.

ISDA Collateral Glossary Chinese Trans

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Transcript of ISDA Collateral Glossary Chinese Trans