A collateral and exposure statement can be sent:
by the taker to provide the details of the valuation of both the collateral and the exposure
by the giver to provide the details of the valuation of both the collateral and the exposure.
Industry Requirements
Unless modified by the parties, the Credit Support Amount is generally the amount of Eligible Credit Support that the Secured Party is entitled to hold as of a particular Valuation Date.
The Credit Support Amount is usually defined as:
the Secured Party's Exposure; plus
the aggregate of all Independent Amounts applicable to the Pledgor, if any; minus
the aggregate of all Independent Amounts applicable to the Secured Party, if any; minus
the Pledgor's Unsecured Threshold.
The Credit Support Amount, however, is deemed to be zero whenever its calculation would yield a number less than zero.
An Independent Amount is an amount that may be used as an add-on to Exposure which can reflect, among other things, the volatility of a particular Transaction or credit concerns relating to one or both counterparties.
When an Independent Amount is applicable to a party, it increases the Credit Support Amount that is applicable when the other party is the Secured Party and decreases the Credit Support Amount that is applicable when that party is the Secured Party.
However, some parties may wish to modify the Credit Support Amount formula specified above to eliminate the subtraction of Independent Amounts applicable to the Secured Party. In this case, the Independent Amount represents the minimum Credit Support Amount when that party is a Credit Support Taker.
For example, Credit Support Amount may be defined as:
the Secured Party's Exposure; plus
the aggregate of all Independent Amounts applicable to the Pledgor, if any, minus
the Pledgor's Unsecured Threshold.
Provided that in the case where the sum of the Independent Amounts applicable to the Pledgor exceeds zero, the Credit Support Amount will not be less than the sum of all Independent Amounts applicable to the Pledgor. In all other cases, the Credit Support Amount will be deemed to be zero whenever the calculation of Credit Support Amount yields an amount less than zero.
Hence, in the Collateral Messages, Independent Amounts should default to be treated as nettable unless being explicitly stated as being non-netted.
The Basic Amount with respect to any one party represents the minimum value of Posted Credit Support required at all times from a counterparty independently of any exposure.
Basic Amounts are not subject to any form of netting with Delivery or Return Amounts.
The Threshold generally represents the amount of unsecured risk (measured by the Secured Party's Exposure and the aggregate of any Independent Amounts due, if any) that a party is willing to tolerate without holding any Posted Credit Support provided by the other party.
Generally, under the standard definition of Credit Support Amount, the unsecured threshold is deducted from the current exposure in order to arrive at the Credit Support Amount required for a particular Valuation Date.
Alternatively, given the flexibility provided under ISDA documentation, the parties can agree to vary the Credit Support Amount definition so that when the exposure is greater than the threshold, the Credit Support Amount is calculated without any deduction of the unsecured Threshold, ie, Credit Support Amount = the entire Secured Party's exposure.
Such a threshold arrangement is commonly referred to by the market as a SECURED Threshold since, once breached, the whole exposure is effectively offset by Posted Credit Support.
EXAMPLE - reporting currency is USD
 Total Exposure Amount |
25,000,090 USD |
| Adjusted Exposure Amount (based on bilateral agreements) |
25,000,090 USD |
| Netted Independent Amount |
1,000,000 USD |
| Unsecured Threshold Amount |
2,000,000 USD |
| Subtotal |
24,000,090 USD |
| Basic Amount |
0 |
| Credit Support Amount |
24,000,090 USD |
| Value of Collateral Held |
15,384,615 USD |
| Delivery Amount |
8,615,475 USD |
| (Minimum Transfer Amount) |
(5,000,000) |
| (Rounding Integer Amount ) |
(250,000) |
| COLLATERAL CALL AMOUNT |
8,750,000 USD |
The items stated in italics are not present on the message as they can be deducted from the other amounts.
