1. Credit Support Annex under ISDA framework vis-à-vis Legal and Regulatory Scenario in India

2. INDEX Credit Support Agreement & Credit Support Annex
Netting and Close-Out Netting Provisions under ISDA Master Agreement
Whether Close-out Netting enforceable in India
Legal Position in India
Regulatory Scenario on CSA
Perspective of ISDA

3. Derivative Transactions
ISDA Master + Schedule
Derivative Transactions
Need for Margin / Credit Support
(Cash / Securities) - Collateral

4. CSD and CSA
ISDA Master Agreement + Schedule Credit Support Deed (CSD) under English Laws Credit Support Annex (CSA) under English Laws CSD – Security Agreement CSA – Direct Transfer (CSA does not create a Charge or Security Interest)

5. Features of CSA:
Nature of Collaterals
Amount
How determined
Periodicity
Its an Annex i.e exchange of Collateral is a “Transaction” under ISDA Agreement
No separate governing law and jurisdiction, as it shall be governed by the law agreed under ISDA Agreement

6. Netting and Close-Out Netting Provisions under ISDA Master Agreement
Payment Netting ( = 2)
combining offsetting cash flow obligations between two parties on a given day in a given currency into a single net payable or receivable; payment netting is essentially the same as set-off
Closing Out Netting
a process involving termination of obligations under a contract with a defaulting party and subsequent combining of positive and negative replacement values into a single net payable or receivable. Basic elements of Close-out Netting :
a. Early Termination,
b. Valuation of the Terminated Transactions
c. Settlement and Set off

7. Enforcement of close-out netting in India
Whether close-out netting under ISDA is enforceable in India ?
a. Companies
b. Private Banks
c. Foreign Banks (Indian Branch)
d. PSBs / SBI

8. LEGAL POSITION IN INDIA
Close-out Netting :
Whether there is any specific legislation in India which permits the same ?
Is there any “direct” High Court or Supreme Court Judgement in India which recognises this concept for derivatives or other transactions/ entities and overruling the application of law of liquidation ? (other than Judgements from which attempt can be been made to draw a distant corollary to enable one to form such view ?)

9. REGULATORY SCENARIO IN INDIA
RBI circulars on Netting :
2011 RBI Circular on Prudential Norms for Off- Balance Sheet Exposures of banks states – “law is not unambiguously clear”
2012 Master RBI Circular on Prudential Guidelines on Capital Adequacy – “No Netting exposure for regulatory capital purposes is not permitted”
Margining is required to be on gross and not on net exposures

10. Basel Requirement on netting :
Basel III permits regulatory capital netting, if regulator is satisfied that written and reasoned legal opinion in said jurisdiction permits close-out netting.

11. Model Netting Act (PROPOSED BY ISDA TO VARIOUS COUNTRIES)
Discussion-Divergent Views In view of the different laws and statutes under which various companies, banks and financial institutions are incorporated/ set up in India, do the present legislations read as a whole, have place for a consolidated all pervading “Netting-Act” ?

12. BASEL perspective on CCP
CCP has to be qualified one i.e. compliant with Committee on Payment and Settlement Systems (CPSS)- International Organisation of Securities Commission (IOSCO)’s Principles for Financial Market Infrastructures (FMI Principles)
(FMI Principles have to be adopted by a Country for implementation. )
If CCP is not Qualified, 20% %, risk weight for trade exposure may apply

13. THANK YOU