Credit Support Annex, CSA

A Credit Support Annex, or CSA, is a legal document which regulates credit support (collateral) for derivative transactions. It is one of the four parts that make up an ISDA Master Agreement but is not mandatory. It is possible to have an ISDA agreement without a CSA. A CSA defines the terms or rules under which collateral is posted or transferred between swap counterparties to mitigate the credit risk arising from "in the money" derivative positions.

Since the financial crisis, banks are charging customers credit charges if the customer did not conclude a Credit Support Annex (CSA) with the bank. 

A CSA mitigates the credit risk arising from in-the-money positions by defining the terms and conditions under which collateral is posted/transferred between the counterparties of the swap transaction. These terms and conditions mainly specify parameters like:

1. Threshold Amount: This amount is the reference value of the mark-to-market of the swap above which collateral has to be posted. For example, if the Threshold Amount is €5.0 mln for a party, this party is required to post collateral only when the negative mark-to-market of the swap is above €5.0 mln.
2. Frequency: Both parties need to agree on the frequency of collateral postings. Often applied frequencies are daily, weekly, and bi-weekly, meaning collateral transfers can only take place every day, weekly, or bi-weekly respectively.
3. Eligible Collateral: The assets that classify as eligible collateral need to be negotiated. Cash and government bonds are the most common eligible instruments. If securities are to be used, it is necessary to define a set of eligible instruments along with the associated haircuts.
4. Minimum Transfer Amount: If the difference between the mark-to-market and the value of the collateral position is in excess of the Minimum Transfer Amount (MTA), extra collateral needs to be posted. The MTA provides operational efficiency as it prevents from small amounts to be paid/received.

CSA changes the mark to market profile of a swap and it also reduces the credit exposures , CSA and OTC pricing,