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Court of appeal clears up ISDA CSA uncertainty: no negative interest accrues

The Court of Appeal has issued its judgment in a recent case The State of The Netherlands v Deutsche Bank AG [2019] EWCA Civ 771 in which the issue under dispute was simple: did negative interest accrue on substantial amounts of cash collateral posted by Deutsche Bank AG (the “Bank”) and held by The State of the Netherlands (the “State”) under the terms of a fairly standard version of the 1995 ISDA Credit Support Annex (English Law – Transfer Form) (the “CSA”)? The Court of Appeal agreed with the first instance Judge in deciding that the State’s claim for “negative interest” failed.

In today’s derivatives market, parties would typically expect interest to be paid by a collateral provider when the agreed interest rate yields a negative figure; however, the collateral relationship, in this case, was set up many years ago before such an interest rate environment was a reality.