The 2013 Standard Credit Support Annex (SCSA) is now published following the ISDA Collateral Steering Committee’s efforts for its development upon the request of the ISDA Board of Directors.
The SCSA, a market-driven initiative with a flexible implementation approach, allows firms to move at the pace they deem appropriate. Market participants have the option of adopting the new SCSA or continuing to use the current CSA. ISDA will support both documents, and expects that a number of market participants will move to the new SCSA over time because of the benefits it offers.
The SCSA retains the operational mechanics of the current CSA but amends the collateral calculation so that derivative exposures and offsetting collateral are grouped into like currencies, or “silos”. The SCSA contemplates the sole use of cash as eligible collateral for variation margin, although securities will still be permitted for initial margin. Each currency silo is evaluated independently to generate a required movement of collateral in the relevant currency. This aligns bilateral collateral structures and economics to be more consistent with margin approaches adopted by global clearing houses.To avoid cross-currency risk, a new net settlement process has been deployed alongside the SCSA, a methodology which enables parties to net various silo collateral flows into a single payment with a single currency. To achieve net settlement, a common set of standardized market rates is required, including overnight interest rates and the Bloomberg-ISDA SCSA rates for FX.
Should you wish to get more details on SCSA, ISDA have published an audio stream / podcast, in which Michael Clarke, co-chair of the ISDA Collateral Steering Committee and Managing Director, Goldman, Sachs & Co., answers questions regarding the SCSA, is available on the ISDA website’s Webcasts & Videos page.