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What determines whether a swap should be discounted against a standard OIS curve VS a 'custom' CSA curve specific to the swap's counterparty? (such custom curves are marked as spreads to some base curve by the bank's trading desk)?

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To trade a swap counterparties must have an ISDA Master Agreement drawn up and signed between themselves.

If collateral is to be exchanged that agreement will also contain a section called a CSA: a Credit Support Annex.

That documentation defines the types of collateral available to post as the liability holder: and the banks choice of discount curve will reflect these choices.

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  • $\begingroup$ So it is decided at the start of the relationship, when the counterparty requests to trade derivatives with this bank and the bank's credit dept approves this counterparty. $\endgroup$ – Alex C May 21 at 9:36

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