ISDA® Publishes 2018 Credit Support Annex for Initial Margin | Practical Law

ISDA® Publishes 2018 Credit Support Annex for Initial Margin | Practical Law

ISDA® published the 2018 Credit Support Annex for Initial Margin (Security Interest – New York Law), intended to assist parties in complying with the upcoming September 2019 (phase four) and September 2020 (phase five) compliance dates for global initial margin (IM) requirements for uncleared swaps.

ISDA® Publishes 2018 Credit Support Annex for Initial Margin

Practical Law Legal Update w-017-2355 (Approx. 6 pages)

ISDA® Publishes 2018 Credit Support Annex for Initial Margin

by Practical Law Finance
Published on 25 Oct 2018 • USA (National/Federal)
ISDA® published the 2018 Credit Support Annex for Initial Margin (Security Interest – New York Law), intended to assist parties in complying with the upcoming September 2019 (phase four) and September 2020 (phase five) compliance dates for global initial margin (IM) requirements for uncleared swaps.
On October 18, 2018, ISDA® published the 2018 Credit Support Annex for Initial Margin (Security Interest – New York Law) (2018 IM CSA), which is intended to assist parties in complying with the upcoming September 2019 (phase four) and September 2020 (phase five) compliance phase-in dates for global initial margin (IM) requirements for uncleared swaps.
The 2018 IM CSA is an updated version of the 2016 Phase One Credit Support Annex for Initial Margin (Security Interest – New York Law) (2016 IM CSA), which was published in August 2016 to enable counterparties to comply with the first of the global IM phase-in dates (see Legal Update, ISDA® Publishes 2016 Phase One Credit Support Annex for Initial Margin).
Like the 2016 IM CSA, the 2018 IM CSA is an annex to the ISDA Schedule and governs collateral arrangements for over-the-counter (OTC) derivatives transactions. The 2018 IM CSA may be used by counterparties to uncleared swaps that are subject to new IM requirements to establish IM arrangements that comply with the rules.
Unlike the 2016 IM CSA, which was intended for use by counterparties subject to global IM requirements that were effective as of September 1, 2016, the 2018 IM CSA is intended for use by counterparties that will come into scope on the upcoming global IM compliance phase-in dates, which are:
  • September 1, 2019 (phase four) for counterparties with an average aggregate notional amount (AANA) of more than $0.75 trillion.
  • September 1, 2020 (phase five) for all counterparties that are not otherwise subject to an exemption.
Global IM requirements are already in effect for the largest of counterparties, or those with an AANA of over $1.5 trillion (see Practice Note, The New ISDA Credit Support Annexes and Global Margin Compliance for Uncleared Swaps).
The 2018 IM CSA is the fourth New York law credit support annex (CSA) published by ISDA. The other three are:
On October 18, 2018, ISDA also published the 2018 Credit Support Deed for Initial Margin (IM) (Security Interest – English Law) (2018 Credit Support Deed), which is an updated version of the 2016 Phase One IM Credit Support Deed (Security Interest – English Law) (see Practice Note, The New ISDA Credit Support Annexes and Global Margin Compliance for Uncleared Swaps: 2016 ISDA Credit Support Annexes (CSAs) and Other Margin Compliance Tools). Unlike the 2018 IM CSA, the 2018 Credit Support Deed is an independent document and is not an annex to the ISDA Schedule.
To assist parties in tracking the changes between the 2016 and 2018 IM credit support documents, ISDA has published blacklines against the two sets of documents. A few differences between the 2016 IM CSA and the 2018 IM CSA include, for example:
  • Amendments to the provisions relating to dispute resolution, secured party rights, notice of exclusive control, pledgor rights, custody arrangements, and minimum transfer amount in the "General Principles" section of the 2018 IM CSA.
  • The addition of three margin calculation approaches in the 2018 IM CSA. Counterparties to a 2018 IM CSA are to select one of the three approaches for calculating margin. The three approaches, defined in the CSA, are:
    • the "Allocated Margin Flow (IM/IA) Approach" (where "IA" is the "independent amount");
    • the "Distinct Margin Flow (IM) Approach;" and
    • the "Greater of Margin Flow (IM/IA) Approach."
  • The addition of definitions for "Margin Amount (IM)" (referring to IM), "Margin Amount (IA)" (referring to independent amounts), and "Margin Approach" (referring to the counterparties' choice of one of the three margin approaches) in the 2018 IM CSA.
  • The addition of Australia, Hong Kong, and Singapore to the regime table in Paragraph 13 of the 2018 IM CSA.
  • The removal of provisions relating to "Retrospective Effect" in the Standard Initial Margin Model (SIMM™) Exceptions portion of the regime table and related definitions in Paragraph 13 of the 2018 IM CSA.
  • The addition of "Fallback to Mandatory Method" and "Mandatory Method" in the SIMM Exceptions portion of the regime table and related definitions in Paragraph 13 of the 2018 IM CSA.
  • The removal of the exhibit to Paragraph 13 providing for the addition of new regimes.
  • Amendments to the eligible collateral (IM) schedule.
ISDA has also published a Microsoft Word version of Paragraph 13 of the 2018 IM CSA to assist counterparties in making their elections and modifying the language as needed.
For more information on the 2018 IM CSA, including more information on the differences between the 2016 IM CSA and the 2018 IM CSA, see Practice Note, The New ISDA Credit Support Annexes and Global Margin Compliance for Uncleared Swaps: 2018 Initial Margin CSA.
For more information on global margin rules, see Practice Note, The New ISDA Credit Support Annexes and Global Margin Compliance for Uncleared Swaps.
"ISDA" is a registered trademark of the International Swaps and Derivatives Association, Inc. (ISDA). ISDA is not a sponsor of Practical Law and had no part in the development of this resource.