The International Swaps and Derivatives Association (ISDA) has released a new credit support annex (CSA) in an attempt to increase efficiency and improve the standardization in the over-the-counter (OTC) derivatives market.
According to the International Finance Review (IFR), the initial CSA that was published by the ISDA in 1994 had an enormous amount of optionality by allowing participants to use a “variety of collateral in differing currencies,” making the valuation of even the simplest swaps an intricate ordeal.
The new Standardized CSA aims to remove this optionality while solidifying overnight index swaps (OiS) discounting as the industry standard and creating a consistent valuation process for cleared and uncleared swaps.
According to IFR, The SCSA will work in conjunction with the old CSA, which will still be backed by the ISDA. Although the amount of participants that will adopt the new SCSA is unclear, the ISDA believes that many will want to capitalize on the benefits that it offers.
“The SCSA simplifies market processes regarding collateralisation by promoting consistent and transparent valuations while making assignment and risk transfer in the bilateral and cleared space more efficient,” said Robert Pickel, chief executive of ISDA.