Isda 2014 Collateral Agreement Negative Interest Protocol

The protocol covers the vast majority of ISDA`s collateral agreements, namely: is the ISDA 2014 Collateral Agreement Negative Interest Protocol (the “protocol”) has recently received new attention, ISDA is holding a webinar market education to discuss the structure and content of the protocol on 11 March 2015, followed by the publication on 12 March 2015 of a statement on negative interest rates and an interest rate market forecast on cash guarantees under the ISDA collateral agreements, March 13, 2015. If you add a client to a master-frame contract after the date you comply with the protocol on behalf of your customers (if that client was an existing customer on the implementation date or a customer purchased after the implementation date), that client will be added to the protocol-modified version, unless otherwise agreed. As I said earlier, there is nothing special about the fact that interest rates are negative, but in a world accustomed to positive interest rates, it requires a new approach to risk analysis and management. Similarly, the effects of negative interest rates can have interesting effects in the context of product transaction documentation, which has been achieved with positive interest rates. Even if, in this situation, a zero interest rate were expected to apply, there could be a disparity between the cost of financing the holder of the protection for the underlying commodity derivative and his interest obligations under the CSA vis-à-vis the supplying party. The choice of the applicable interest rate used to determine the amount of interest may exacerbate this difference. For example, if the swap valuation for the calculation of exposure is based on libor discount rates, but the interest payment on the security held is paid on indexed swap rates (OIS) of less than 6 days7, what happens if the LIBOR rate is close to zero (but still positive) but the OIS rate has turned negative? In guaranteed commodity portfolios, the underlying derivative may be self-financed by collateral, but perhaps more so in the ISDA CSA context than in a CSA EFET8. Another problem related to the issue of financial inclusion is the calculation of “exposure” (as defined in each CSA). If negative interest rates are used in this calculation, the result is a higher closing value and, therefore, the requirement for a greater guarantee than would be without the application of negative interest rates. In the event that a final amount is to be determined under an ISDA, EFET MNA, EFET Power or EFET gas management contract, payments and deliveries due after the closing date of the transaction are required in this exercise. These payments are calculated on the basis of the net worth of the asset9. If the interest rate used for this current value determination is negative, it has the effect of increasing the amount and not discounting it.