A credit support appendix (CSA) is a document that sets out the conditions for the parties to make guarantees available in derivatives transactions. It is one of four parts of a standard contract or master`s contract developed by the International Association of Swaps and Desivatives (ISDA). Derivatives trading carries high risks. A derivative contract is an agreement to buy or sell a certain number of shares of a stock, a loan, an index or other asset at any given time. The amount paid in advance is a fraction of the value of the base asset. In the meantime, the value of the contract varies with the price of the underlying. An ISDA master contract is the standard document that is regularly used to regulate over-the-counter derivatives transactions. The agreement, published by the International Swaps and Derivatives Association (ISDA), outlines the conditions to be applied to a derivatives transaction between two parties, usually to a derivatives trader and counterparty. The master contract of the ISDA itself is the norm, but it is accompanied by a bespoke timetable and sometimes an annex to support the credit, both signed by both parties in a given transaction.
A Support Credit Annex (CSA) is a legal document that regulates credit support (assets) for derivatives transactions. It is one of the four parties that make up an ISDA executive contract, but it is not mandatory. It is possible to have an ISDA agreement without CSA, but normally no CSA without ISDA. A master`s contract is required for derivatives trading, although the CSA is not required in the overall document. Since 1992, the framework agreement has been used to define the terms of derivatives trading and make them mandatory and enforceable. Its publisher, ISDA, is an international trade association for participants in futures markets, options and derivatives. The framework agreement and timetable define the reasons why one party may impose the closure of covered transactions due to the appearance of a termination event by the other party. Standard termination events include defaults or bankruptcy. Other closing events that can be added to the calendar include a downgrade of credit data below a specified level. The most important thing is to remember that the ISDA executive contract is a clearing agreement and that all transactions are interdependent. Therefore, a default in a transaction counts by default among all transactions.
Point 1 (c) describes the concept of a single agreement and is of paramount importance as it forms the basis for network closures. When a standard event occurs, all transactions are completed without exception. The concept of out-of-gap clearing prevents a liquidator from making „cherry pickings,“ i.e. making payments on profitable transactions for his bankrupt client and refusing to do so in the case of an unprofitable customer. Most multinational banks have ISDA master agreements. These agreements generally apply to all branches engaged in currency, interest rate or option trading.