TCX will require new counterparties looking to hedge their foreign exchange risk to enter into an ISDA agreement. Such an agreement consists of a number of documents:
ISDA Master Agreement
The ISDA is an internationally agreed document published by the International Swaps and Derivatives Association (ISDA) which is used to provide certain legal and credit protection for parties who entered into over-the-counter (OTC) derivatives. The ISDA Master Agreement is an umbrella agreement which sets out the terms between the parties who want to trade OTC derivatives.
The ISDA Master Agreement is signed by the parties without any change.
The ISDA Schedule allows parties to add to or alter the terms of the pre-printed, standard form ISDA Master Agreement.
Credit Support Annex (CSA)
The Credit Support Annex (CSA) is another agreement that is part of the series of documents provided with the ISDA Master Agreement. The main feature of the CSA is the set-up of collateral terms for derivative transactions under the ISDA Master Agreement, including:
- an eventual independent amount (initial margin) to be posted ahead of each operation
- a threshold triggering (further) collateral calls
- a minimum transfer amount (variable margin)
- the type of collateral to be provided (TCX only accepts USD and EUR cash)
- the frequency of collateral calls