Negative Interest Under the 1995 ISDA Credit Support Annex (Transfer – English law): What the High Court Decided—and How TRW Re-Papers Your Risk in 2025

Audience: Bangladesh-origin banks, NBFIs, corporates, and funds that (i) hedge FX/rates/commodities with EU/UK dealers, (ii) still have legacy 1995 ISDA Credit Support Annex (Transfer – English law) relationships in their book, or (iii) run back-to-back structures where old and new collateral frameworks co-exist.

Core holding (plain English): The High Court of England and Wales held that the 1995 English law title-transfer CSA does not require a Transferor that has posted cash collateral to pay or account for negative interest to the Transferee. In other words, under the standard 1995 English law CSA, there is no contractual obligation to make a reverse-direction payment when the applicable interest rate on cash collateral drops below zero. If parties want negative-interest economics, they must draft for it (e.g., in Paragraph 11) or adhere to ISDA’s 2014 Collateral Agreement Negative Interest Protocol (which many legacy pairs did not do).

1) Why this decision still matters in 2025

You might think negative rates were a “2015–2021” phenomenon—but rate regimes can and do pivot. More importantly, many treasuries still carry legacy 1995 CSAs for long-dated transactions, amortizing infra hedges, or older back-to-backs. During a renewed stress episode (or even a short negative-print window), the treatment of collateral interest can move real P\&L and close-out math. The High Court ruling places a bright marker: no negative-interest obligation under the standard form unless parties expressly contracted for it.

Why Bangladesh-origin institutions care:

• Mixed estates: It’s common to have a 1995 CSA on one leg and a 2016 VM CSA (or a bespoke modern annex) on another. Asymmetry creates basis risk if negative-rate conditions return.
• Back-to-backs with clients/suppliers: If your upstream (street) leg recognizes negative interest but the downstream (client/intra-group) leg doesn’t, your treasury becomes the shock absorber.
• Close-out disputes: During termination events, counterparties will scrutinize every cash-flow convention. Clear drafting—and clear evidence trails—win the day.

2) The facts, simplified

• The State and Deutsche Bank traded multiple derivatives under an ISDA Master Agreement with a 1995 ISDA CSA (Transfer – English law).
• At the relevant time, Deutsche Bank had posted cash collateral to the State (the State had net credit exposure).
• The applicable interest rate on that cash collateral turned negative for a period.
• The relationship did not incorporate the 2014 ISDA Collateral Agreement Negative Interest Protocol.

The State’s claim: Not by invoking the explicit interest-payment clause Paragraph 5(c)(ii) (which concerns positive interest), but by a structural route: arguing that the definition of “Credit Support Balance” implicitly accounts for negative interest. Because Credit Support Balance includes any Interest Amount “not transferred” pursuant to 5(c)(i) or (ii), the State argued that negative accruals reduce the Credit Support Balance and thus force additional collateral posting.

3) The High Court’s analysis (business-friendly summary)

• Textual spine: While “Interest Amount” could mathematically be negative, Paragraph 5(c)(ii)—the clause that pays interest—does not require paying negative interest.
• No “two-machinery” rationale: The State’s theory would mean positive interest is handled in 5(c)(ii) but negative interest is smuggled in via the Credit Support Balance definition. The Court found no credible commercial rationale for this asymmetry. If parties wanted to deal with negative interest, the “obvious course” was to put it in 5(c)(ii) or otherwise spell it out.
• Result: The Agreement does not oblige the Transferor to pay or account for negative interest under the 1995 English law title-transfer CSA.

Commercial translation: The 1995 form was drafted in a positive-rate paradigm. It contains a working engine for paying positive interest on posted cash; it never installed the reverse flow. Courts will not retrofit that engine by implication through a definition designed for counting amounts, not creating new payables.

4) How this sits with the Protocol and newer CSAs

• 2014 ISDA Collateral Agreement Negative Interest Protocol: A voluntary, standardized way to amend certain collateral agreements to recognize negative interest. If both parties adhered, your interest mechanics may already allow negative cashflows. If not, the default 1995 position stands.
• 2016 ISDA VM CSA (English law): Designed in the post-crisis era, it aligns daily VM, eligible collateral, haircuts, and interest mechanics with modern risk-mitigation regimes. Many 2016 forms speak clearly about interest treatment (including floors). A 2016 VM CSA won’t automatically cure what an old 1995 CSA says (or doesn’t say) on other relationships.

Bottom line: Do not assume your book is harmonized. Inventory your annexes and read the actual words.

5) Treasury math: where negative-interest ambiguity bites

Even a brief negative-rate window can ripple through:

• Collateral posting size: Under the State’s theory (rejected), negative accruals would reduce Credit Support Balance and increase daily calls. The Court avoided that spiral by holding no negative-interest obligation exists absent drafting.
• Back-to-back mismatches: Upstream negative-interest recognition with downstream silence creates P\&L mismatch.
• Close-out determinations: Termination amounts can be sensitive to collateral economics (e.g., whether a collateral account notionally accrues below zero).

6) What TRW recommends you do—now

6.1 Audit and classify your estate

1. List every CSA by counterparty, date, and type (1995 English law Transfer; 1994/1995 New York law security interest; 2016 VM CSA; bespoke).
2. Mark Protocol adherence (2014 Negative Interest) for both parties; attach the actual adherence records.
3. Flag interest clauses: Does the text (i) impose a zero floor, (ii) allow negative interest, or (iii) stay silent?

6.2 Decide your “house position”

• Option A—Zero floor (no negative interest): Adopt or confirm a zero floor under legacy 1995 CSAs; avoid P\&L leakage if rates re-dip.
• Option B—Allow negative interest (symmetry): If your pricing depends on full symmetry, draft it in (Paragraph 11); align benchmark, day-count, and cut-offs with your ops.

6.3 Repaper precisely (Paragraph 11)

If you want to move from silence to clarity, Paragraph 11 is the correct place for bespoke elections and overrides. Keep it tight:

• Define where interest accrues (collateral currency vs exposure currency benchmarks).
• State the floor (zero or negative allowed) and direction (who pays whom).
• Set day-count, rounding, and payment frequency.
• Reflect time-zone cut-offs and valuation timestamps that Treasury can actually run (Dhaka–Dubai–London choreography).

6.4 Align your notices mechanics (separate but critical)

A negative-rate episode often overlaps with market stress. If you are terminating or disputing calls, your notices must stick. Consider adopting the ISDA notices amendments (email enablement, Notice Delivery Cut-off). This reduces “we never got it” fights and timing ambiguity during close-outs.

7) Drafting tactics (that win in audit and in court)

• Say the quiet parts out loud: If negative interest is not intended, state a zero floor expressly. If you do intend it, say so and wire the plumbing (who pays; when; how calculated).
• Separate VM and IM logic: IM (if you are in scope) is segregated; interest conventions can differ. Don’t let IM language contaminate VM clauses.
• Currency-aware drafting: If you post USD against EUR exposure, decide whether interest follows the collateral currency or a specified benchmark; paper FX haircut logic to avoid “double-charging” for currency risk.
• Operational annex: Add a margin/interest procedures memo (valuation times, tolerance bands, escalation). In disputes, good SOPs become good evidence.
• Back-to-backs: If only one side permits negative interest, install an internal transfer pricing or adjustment mechanism so Treasury isn’t unhedged.

8) Bangladesh-first operational reality

• FX & banking channels: Cross-border collateral flows must track Bangladesh Bank requirements and documentary evidence. Map VM interest inflows/outflows to permitted accounts; pre-clear with your banks.
• Time-zones and cut-offs: Align valuation and payment cut-offs with Dhaka-Dubai-London banking windows. A clause that assumes New York evenings won’t help your Dhaka desk settle next-day VM.
• Board governance: Update your Derivatives Use Policy to state the firm’s negative-interest stance by annex type; require quarterly collateral P\&L reporting.

For broader governance and lender alignment, see TRW’s internal guide on Regulatory (Bangladesh Bank) and our banking documentation primer Secured Lending & Syndication.

9) FAQs (2025)

Q1. Does the decision mean negative interest is never payable under a 1995 English law CSA?
No—it means the standard form doesn’t require it. Parties can contract for it (e.g., in Paragraph 11) or both adhere to the 2014 Protocol.

Q2. Our upstream 2016 VM CSA recognizes negative interest, but our legacy 1995 downstream annex is silent. Is that a problem?
Potentially. You may experience P\&L mismatch in a negative-rate window. Consider a downstream rider (either zero floor or symmetry), or a transfer pricing mechanism.

Q3. Can a court imply a term for symmetry because positive interest exists?
The High Court’s reasoning cuts against implication. If you want symmetry, write it in. Courts respect ISDA’s careful drafting culture.

Q4. Should we simply adhere to the 2014 Protocol?
It’s a clean path if both parties agree—but confirm it fits your treasury policy, benchmarks, and day-count. Some prefer a tailored Paragraph 11 rider for precision.

Q5. We have dozens of counterparties. Where do we start?
Start with material exposures and long tenors. TRW will produce a CSA inventory, flag negative-interest status, and propose a two-page rider for fast bilateral execution.

10) Action plan (8–10 weeks)

Weeks 1–2: Diagnostic

• Inventory CSAs; tag Protocol adherence; classify interest stance (zero floor / negative allowed / silent).
• Identify mismatch pairs (upstream vs downstream).

Weeks 3–6: Documentation

• Prepare a standard Paragraph 11 rider (two variants: Zero Floor and Negative Allowed).
• Prioritize counterparties by exposure/volatility; negotiate in parallel.

Weeks 6–8: Ops hardening

• Update SOPs (valuation times; journals; escalation).
• Add ledger interest codes (by annex type); rehearse a negative-rate table-top.

Weeks 8–10: Governance

• Amend Derivatives Use Policy; brief the board and lenders; publish an internal one-pager on negative interest.

11) Sample policy language (illustrative only)

Interest on Cash Collateral (VM). Except as otherwise agreed in the applicable Credit Support Annex, any Interest Amount in respect of Cash Collateral shall not accrue below zero; for the avoidance of doubt, no obligation to pay or account for negative interest shall arise. Where the parties expressly elect to recognize negative interest, Interest Amount may accrue below zero and shall be payable by the party specified in Paragraph 11, calculated by reference to the agreed benchmark and day-count convention.

(TRW will tailor the operative drafting directly in Paragraph 11 of your 1995 CSA or prepare a short-form rider.)

12) Common pitfalls we fix before they bite

1. Assuming Protocol coverage—many books never adhered (or only one party did).
2. Relying on generic confirmations—they often don’t amend CSA interest mechanics.
3. Day-count and rounding drift—small numbers, big audit findings.
4. Currency mismatch leakage—posting USD against EUR exposure without clear FX haircut and interest currency rules.
5. Back-to-back blind spots—street vs client annexes not aligned; Treasury eats the basis risk.
6. No evidence trail—when disputes hit, you need journals, timestamps, and SOPs.

13) Structured summary table (print-friendly)

Topic	What the Court held	Why it matters	What to do now	TRW deliverable
1995 CSA (English law) & negative interest	No obligation to pay/account for negative interest under standard form	Avoids surprise collateral calls and P\&L shifts in negative-rate windows	Decide house stance: zero floor or allow negatives	Two-variant Paragraph 11 rider
“Credit Support Balance” argument	Cannot be used to smuggle in negative interest	Prevents creeping obligations via definitions	Keep interest obligations in 5(c)(ii)/Paragraph 11	Red-lined annex with clean definitions
Protocol (2014)	Enables negative-interest recognition if both adhered	Many pairs never adhered; don’t assume	Check adherence lists; remediate gaps	CSA inventory with adherence flags
Mixed estates (1995 vs 2016 VM)	Asymmetry creates basis/P\&L risk	Back-to-backs vulnerable	Harmonize with riders or internal transfer pricing	Back-to-back mapping memo
Ops & governance	Evidence and clarity win	Audits and close-outs hinge on records	Update SOPs, day-count, cut-offs, journals	SOP pack + table-top drill plan

14) Conclusion: decide your economics—and write them down

The High Court’s judgment confirms what seasoned documentation lawyers long suspected: the 1995 English law title-transfer CSA never hard-wired negative interest. That clarity is an opportunity. In 2025, you can either (i) lock in a zero floor (the simplest path for many Bangladesh-origin treasuries) or (ii) elect symmetry with precision drafting where your pricing demands it. What you should not do is leave the question to interpretation. Markets move; paperwork lasts.

TRW will (a) map your CSAs, (b) draft the Paragraph 11 rider that fits your treasury’s reality, (c) align upstream/downstream books, and (d) harden your SOPs so the legal text, daily ledger, and courtroom story are perfectly aligned.

For adjacent governance and credit alignment, see:

• Regulatory (Bangladesh Bank)
• Secured Lending & Syndication

Contact TRW Law Firm

Tahmidur Remura Wahid (TRW) Law Firm
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London (UK): 330 High Holborn, London WC1V 7QH, United Kingdom

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Email: info@trfirm.com | info@trwbd.com | info@tahmidur.com

Prepared by TRW’s Derivatives & Structured Products team. This article is for general information only and does not constitute legal advice; we tailor advice to the specifics of your documentation stack and regulatory posture.