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VM NY CSA has landed

ISDA has yesterday published its long-awaited 2016 Credit Support Annex for Variation Margin for use with New York law. The VM security-interest CSA is the first in a series of new market-standard documentation and will be joined by VM CSAs under English and Japanese law, IM CSAs and a protocol to assist amendment of legacy documents. The new document is available from the ISDA website.

“ISDA’s legal working groups have focused on amending collateral documentation to comply with new margining requirements for the past two years. The recent publication of final rules by some national regulators has enabled the group to finalize the first document, allowing market participants to make the necessary changes ahead of implementation,” said Katherine Darras, ISDA’s acting General Counsel.

As implied in the above quote, ISDA has been somewhat constrained by the national regulators’ tardy release schedule. US prudential regulators published their final version of the margining rules in October 2015, the CFTC in December, Europe and Japan came on board in March this year; Hong Kong, Singapore, Australia are still languishing in draft form, the SEC most egregiously so. VM margin rules for the largest users apply from 1 September 2016, all others from 1 March 2017. The new VM NY CSA is a complex document with many elections, the choice between amendment of legacy CSAs and outright repapering will not be easy. Although a protocol will be forthcoming, the one-shot adherence model is ill-suited to multiple election and it remains to be seen if counterparties will accept the public dissemination of previously confidential credit terms. Whether compliance is achieved by use of the new CSA or amendment of previous versions, a significant client outreach and education exercise will be required- time is already short.

A detailed analysis of the changes between new and legacy VM NY CSAs will follow shortly.

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