What Are the Implications of a “Zero Threshold” in a CSA?
A "zero threshold" in a Credit Support Annex (CSA) means that the counterparty must post collateral for any non-zero mark-to-market exposure immediately. It eliminates the initial uncollateralized exposure limit, significantly reducing credit risk.
However, it increases the operational burden of managing frequent, small margin calls and necessitates a highly efficient collateral management system.
Glossar
Credit Support Annex
Documentation ⎊ This legal supplement, typically attached to an ISDA Master Agreement, specifies the terms under which collateral is exchanged between counterparties to mitigate credit exposure in derivative transactions.
Uncollateralized Exposure
Risk ⎊ Uncollateralized exposure in cryptocurrency derivatives represents a systemic vulnerability stemming from the absence of pledged assets to cover potential losses, particularly acute in perpetual swaps and options.
Threshold
Barrier ⎊ A threshold, within cryptocurrency derivatives and options trading, fundamentally represents a price level that must be breached for a contract to become active or trigger a specific outcome.