Credit Support Annex

What is a 'Credit Support Annex'

A credit support annex provides credit protection by setting forth the rules governing the mutual posting of collateral. CSAs are used in documenting collateral arrangements between two parties that trade privately negotiated (over-the-counter) derivative securities. The trade is documented under a standard contract called a master agreement, developed by the International Swaps and Derivatives Association (ISDA). The two parties must sign the ISDA master agreement and execute a credit support annex before they trade derivatives with each other.

BREAKING DOWN 'Credit Support Annex'

In addition to executing the ISDA master agreement and credit support annex, issuers must implement proper resolutions that give authorization to execute any derivative transactions. Each issuer must also obtain an opinion from its respective legal counsel about whether both parties can enter into swap transactions. Issuers must also ensure that such contracts are binding and enforceable, and obtain final credit approval from a bank.

RELATED TERMS
  1. ISDA Master Agreement

    A standard agreement used in over-the-counter derivatives transactions.
  2. International Swaps and Derivatives ...

    An association created by the private negotiated derivatives ...
  3. Credit Derivative

    Privately held negotiable bilateral contracts that allow users ...
  4. Master Swap Agreement

    A basic, standardized swap contract created by the International ...
  5. Credit Agreement

    A legal contract in which a bank arranges to loan a customer ...
  6. Derivative Product Company - DPC

    A special-purpose entity created to be a counter-party to financial ...
Related Articles
  1. Investing Basics

    ISDA Master Agreement

    The ISDA Master Agreement is a document outlining the terms of an over-the-counter derivatives transaction between two parties. This document serves as a standard agreement in these transactions ...
  2. Professionals

    What is a Derivative?

    CFA Level 1 - What is a Derivative?. Learn the basicas of derivative instruments. Covers various types of options, swaps and differentiates exchange and over-the-counter trades.
  3. Fundamental Analysis

    Derivatives 101

    Learn how to use this type of investment as an alternative way to participate in the market.
  4. Stock Analysis

    Find The Right Discount Rate Amid Post-2007 Risks

    OIS discounting has become part of standard valuation techniques, in a market in which there is more uncertainty and less proxies for the risk-free rate.
  5. Options & Futures

    Derivatives 101

    A derivative investment is one in which the investor does not own the underlying asset, but instead bets on the asset’s price movement with another party.
  6. Professionals

    Swap Markets and Contracts

    CFA Level 1 - Swap Markets and Contracts. Learn the basics of swaps, including how they are used and settled. Includes various methods for terminating a swap contract.
  7. Options & Futures

    Is Your Mutual Fund Safe?

    You might be carrying more risk than you think if your fund invests in derivatives.
  8. Options & Futures

    Futures, Derivatives and Liquidity: More or Less Risky?

    Futures and derivatives get a bad rap after the 2008 financial crisis, but these instruments are meant to mitigate market risk.
  9. Credit & Loans

    7 Tips For Closing A Credit Card

    Closing a credit card can help improve your credit score by freeing up your available credit or getting out of a high interest rate agreement.
  10. Options & Futures

    4 Equity Derivatives And How They Work

    Equity derivatives offer retail investors opportunities to benefit from an underlying security without owning the security itself.
RELATED FAQS
  1. What is the difference between derivatives and swaps?

    Find out more about derivative securities, swaps, examples of derivatives and swaps, and the main difference between derivative ... Read Answer >>
  2. What is an over-the-counter derivative?

    Learn more about over-the-counter derivatives and how they work with an example of a derivative trade-off exchange. Read Answer >>
  3. Can mutual funds invest in derivatives?

    Find out about mutual fund investment options, and understand whether mutual funds are permitted to include investments in ... Read Answer >>
  4. What is a derivative?

    A derivative is a contract between two or more parties whose value is based on an agreed-upon underlying financial asset, ... Read Answer >>
  5. What is the difference between derivatives and options?

    Learn how options are one type of derivative and how equity options derive their value from a stock, and understand other ... Read Answer >>
  6. How important is credit rating on a fixed income security?

    Learn how credit ratings for fixed-income securities impact the yield and provide guidance for the amount of risk for the ... Read Answer >>
Hot Definitions
  1. Law Of Demand

    A microeconomic law that states that, all other factors being equal, as the price of a good or service increases, consumer ...
  2. Cost Of Debt

    The effective rate that a company pays on its current debt. This can be measured in either before- or after-tax returns; ...
  3. Yield Curve

    A line that plots the interest rates, at a set point in time, of bonds having equal credit quality, but differing maturity ...
  4. Stop-Limit Order

    An order placed with a broker that combines the features of stop order with those of a limit order. A stop-limit order will ...
  5. Keynesian Economics

    An economic theory of total spending in the economy and its effects on output and inflation. Keynesian economics was developed ...
  6. Society for Worldwide Interbank Financial Telecommunications ...

    A member-owned cooperative that provides safe and secure financial transactions for its members. Established in 1973, the ...
Trading Center