Credit Support Annex

DEFINITION of '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. Swap

    A derivative contract through which two parties exchange financial ...
  2. Derivative

    A security with a price that is dependent upon or derived from ...
  3. Collateral

    Property or other assets that a borrower offers a lender to secure ...
  4. Over-The-Counter - OTC

    Over-The-Counter (or OTC) is a security traded in some context ...
  5. Credit

    1. A contractual agreement in which a borrower receives something ...
  6. International Swaps and Derivatives ...

    An association created by the private negotiated derivatives ...
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