Negotiating new or amending a CSA

CSAs are not documentation. They are pricing engines.

For many counterparties, collateral terms determine how funding costs, capital charges and credit risk are priced and transferred. Where collateralisation is absent or asymmetric, dealers are required to hold CVA, FVA and capital against the exposure. Those costs are embedded into pricing, often opaquely and inconsistently.

Amending or introducing CSAs creates a clear opportunity:

• Release embedded XVA reserves
• Reduce ongoing pricing costs
• Restore genuine competitive tension between dealers

But this value is not automatically realised. It must be identified, quantified and negotiated.

We advise clients on how to do exactly that, drawing on direct experience from negotiating hundreds of CSAs from the dealer side, including XVA releases in excess of $50m.

The Structural Problem

In uncollateralised or one-way CSA structures:

• Dealers carry persistent exposure
• That exposure generates CVA, FVA and capital costs
• Those costs are passed through in pricing with discipline

At the same time:

• The release of those costs is not systematically returned to the client
• Pricing remains opaque and dealer-specific
• Competitive pressure breaks down

The result is predictable:

• Downside is transferred efficiently
• Upside is only partially shared

Most clients, even with the specialist support of some of the major consultancy firms only capture only 30–40% of the available economic value…. and the dealer keeps the rest.

Why One-Way CSAs Destroy Pricing Pressure

Understanding the Drivers of Value

The value created by CSA changes is driven by:

• PFE Exposure profiles
• Netting Sets
• CVA, FVA and KVA curves
• Capital - some of which are dealer-specific
• Collateral Terms (Eligible Assets, Thresholds, MTAs) 
  • Collectively→ Computing XVA Releases

We analyse these drivers in detail, supported by:

•  Clearing vs Bilateral 

These determine both the size of the opportunity and how it is ultimately shared.

Our Approach

Valuation of Reserve Release

We quantify the economic benefit of CSA changes across:

• CVA reduction
• Funding benefit
• Capital relief

This produces a clear view of:

• Total value available
• Where that value sits across counterparties
• How it should be monetised

Negotiation Strategy and Execution

This is where outcomes are determined.

Dealers operate with structural advantages:

• Internal XVA models and assumptions
• Funding and capital frameworks that are not externally visible
• Significant discretion in how value is presented and shared

This market is inherently opaque. Without the ability to interrogate dealer assumptions, clients are negotiating at an informational disadvantage.

We know how dealers price these effects, and how they should be priced.

We are able to:

• Identify weak or inconsistent assumptions
• Challenge pricing constructively and credibly
• Reverse engineer methodologies where required
• Expose inconsistencies and enforce discipline in negotiation

Where unsupported arguments persist, we know how to deconstruct them and demonstrate their impact on pricing, creating a clear basis for escalation.

Our process introduces:

• Real competitive tension across dealers
• Alignment on methodology where required
• Transparency around where value is being retained

The objective is not confrontation, but control of the process and the outcome.

Structuring CSA Terms

We advise on CSA design to ensure:

• Maximum economic benefit
• Controlled liquidity impact
• Minimal unnecessary complexity

This includes:

• Initial margin calibration
• Thresholds and MTAs
• Eligible collateral
• Downgrade and contingent provisions

The result is a structure that is both economically efficient and practical to operate.

Operational Design and Implementation

Operational complexity is often cited as a barrier but can be managed efficiently.

We support:

• Collateral management design
• Valuation and dispute processes
• Cash and collateral workflows
• Custodian and tri-party integration

Where appropriate, we design models leveraging dealer infrastructure or third-party providers to minimise internal build.

Why Our Experience Matters

This is an unusually opaque and specialist market. Experience on the inside matters.

Our team combines:

• Deep expertise in CVA and XVA pricing and structuring at the highest level
• Senior buy-side experience managing dealer relationships and extracting value across multiple counterparties
• Front-line rates trading experience, including frequent issuers and supranationals, with direct exposure to how CSA inefficiencies impact pricing, unwinds and execution

 We have negotiated dozens of material CSAs (XVA release >$5m) and delivered XVA releases of as much as $50m+.

We have also regularly engaged opposite large consulting firms supporting clients in these processes. They bring structured frameworks and process discipline, but often lack direct exposure to how XVA is priced, transferred and defended within dealer organisations.

As a result:

• Certain assumptions are accepted rather than challenged
• Key areas of pricing discretion are not fully explored
• Negotiation leverage is not always maximised

We understand where these gaps exist and how to address them.

We know:

• How dealers actually behave in negotiations
• Where value is created, hidden and lost
• How to convert theoretical benefit into realised outcomes

In a market where transparency is limited, having an experienced counterparty to the dealers materially changes the result.

Conclusion

CSA structure is one of the largest hidden drivers of derivatives pricing.

For many counterparties, substantial value already exists within their portfolios but is not realised due to pricing opacity and negotiation dynamics.

A structured approach to:

• Valuation
• Negotiation
• Implementation

can materially improve outcomes.

We combine technical expertise with real negotiation experience to ensure that value is not just identified, but captured.