Form of Amendment to 1994 ISDA Credit Support Annex (Security Interest - New York Law)

This Amendment will enable parties with 1992 ISDA Master Agreements (which have been amended to include Close-out Amount) to amend their existing Credit Support Annex to take into account the addition of Close-out Amount and the deletion of Market Quotation and Loss.

Form of Amendment to 1995 ISDA Credit Support Annex (Transfer - English Law)

This Amendment will enable parties with 1992 ISDA Master Agreements (which have been amended to include Close-out Amount) to amend their existing Credit Support Annex to take into account the addition of Close-out Amount and the deletion of Market Quotation and Loss.

This amendment was made in order to resolve a discrepancy between market practice in Japan and the ISDA documentation. Each of the English Law (Transfer) ISDA CSA and New York Law ISDA CSA was amended to have Gross-Up clause not applicable as it allowed the Obligor to argue that the payment should be a gross-up based on Section 2(d) of the ISDA Master Agreement, and resulted in the Obligee being asked not to deduct the withholding tax.

In the Japanese tax system, interest income from cash deposits placed with an account opened with a bank located in Japan, which is paid to a foreign corporation (i.e. a foreign bank) is taxed by withholding at the source by the Japanese payer (Income Tax Law, Article 212, clause 1) unless such interest income is attributable to a branch or other permanent establishment in Japan.

When a Japanese resident bank receives cash collateral from a nonresident bank, it is the market practice that a Japanese resident bank (the Obligee) shall pay the Interest Amount less withholding tax to a nonresident bank (the Obligor). This allowed the Obligor to argue that the payment should be a gross-up based on Section 2(d), and ask the Obligee not to deduct the withholding tax.

2001 ISDA Margin Provisions

The 2001 ISDA Margin Provisions offer a single document in which parties can select jurisdiction-specific provisions to apply to their margin arrangements, including New York law, English law and Japanese law. The Margin Provisions have common operational provisions and incorporate a plain English approach. In addition, more streamlined timing and dispute resolution procedures are offered. A new supplement is available, as well as forms of notices.

Erratum to Part 4 of the 2001 ISDA Margin Provisions
(Free Download in PDF Format)

The ISDA Collateral Committee has undertaken a comprehensive review of the 1998 Guidelines for Collateral Practitioners. The 2005 ISDA Collateral Guidelines (the “2005 Guidelines”) also revisit some of the recommendations made in the ISDA 1999 Collateral Review.

The 2005 Guidelines are intended to:

• Document the state of collateral management practice at the end of 2004.
• Discuss the nature and mechanics of collateralization, including the key legal foundations.
• Describe the interaction of the collateral management function with other areas of the firm.
• Identify the benefits and risks of collateralization.
• Outline current trends and possible future developments in collateral management.

The 2005 Guidelines takes a comprehensive approach to the many different facets of collateral management. Among the topics addressed are:

• Collateral as a Risk Management Tool;
• Collateral Management Function;
• Documentation for Collateral;
• Margin Call Process;
• Managing Collateral Assets and
• Trends in Collateral Management.
  

Guidance on UK Tax Issues Arising from the Use of the English Law Credit Support Annex (Appendix 2 of the Guidelines for Collateral Practitioners)

Chapter 4 of the 2005 ISDA Collateral Guidelines highlights tax considerations which may affect a firm’s choice of Credit Support Documentation. As a general matter, tax is more likely to be of concern in relation to the title transfer approach reflected in the ISDA Credit Support Annex (Transfer-English Law) or the English law title transfer approach under the 2001 ISDA Margin Provisions (because of the fact that title to the collateral asset has been transferred), although the UK taxation issues have largely been eliminated during the course of bilateral discussions between ISDA and the UK Inland Revenue. Summaries of these discussions were originally included in the Guidelines for Collateral Practitioners in 1998 and have been extracted herein (Appendix 2) for firms’ convenience. Firms should consult with their legal advisors regarding any tax considerations.

ISDA Collateral Asset Definitions

The ISDA Collateral Asset Definitions standardize the descriptions for the most commonly used collateral assets in various jurisdictions, reducing operational and legal risks in the use of collateral and providing a more streamlined method for including assets in collateral arrangements. The Definitions are structured as a series of tables covering the most commonly used assets in more than twenty jurisdictions. The Definitions are designed for incorporation into any form of collateral agreement, including both ISDA Credit Support documentation and non-ISDA forms of collateral agreement. ISDA anticipates publishing future editions of the ISDA Collateral Asset Definitions, updated to reflect changes in the published definitions and to include additional assets.

ISDA Glossary of Collateral Terms - Chinese Translation

The Glossary of Collateral Terms – Chinese Translation was complied by a working group organized under the auspices of ISDA’s Asia-Pacific Collateral Committee. It is intended to serve as an educational reference tool and as a practical guide for collateral practitioners in relation to privately negotiated derivatives trades when the use of both English and Chinese languages are required.

ISDA 1999 Collateral Review
Please refer to the 2005 ISDA Collateral Guidelines.

The ISDA 1999 Collateral Review follows the ISDA Guidelines for Collateral Practitioners published in October 1998. The ISDA Guidelines were intended as an introduction to the practicalities of managing collateral for privately negotiated derivatives transactions, while the ISDA Collateral Review is a more advanced discussion of collateral management practices.

The ISDA Collateral Review reflects the experiences of collateral practitioners during periods of market volatility and contains twenty-two recommendations in the area of collateral management. The ISDA Collateral Review also sets out action plans for collateral practitioners, regulators and ISDA to enhance the effectiveness of collateralization as a risk mitigation technique.