Template:M intro csa (VM)

God bless them, when ISDA’s crack drafting squad™ were deep in the ritualistic sacrifice phase of the Wording for the regulatory margin CSAs someone — we like to think it was Ser Jaramey Slizzard himself, but it is not documented — hit upon the idea of suffixing certain of the definitions in the Modern CSAs with “(VM)” — for “variation margin” — and (IM) — for “initial margin”. So assiduous were the those Fruty knyghtes of the Isdere that the expression features no fewer than 235 times across the 2016 VM CSA and a full 335 times across the 2016 NY VM CSA scattered like buckshot across the posterior of a frolicking trespasser caught in flagrante delicto in his field by an angry farmer.

Here is what 335 VMs look like in a job lot:

(VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM) (VM)

This seems to us rather a waste of trees, and printer toner — a commodity more expensive per gram than enriched plutonium.

We are all environmentalists now: are there good grounds for such profligacy? As is usual for the squad’s lexical peccadilloes, the answer is “in theory, yes. In practice — perhaps once upon a time, if you tilt your head and screw your eyes quite tightly.

Regulatory margin was not something that anyone asked for. The financial services community had it imposed upon it, but the financial regulation community, in a fit of exasperation after the manifold disasters of the global financial crisis, the way a fearsome kindergarten teacher might order a truculent child to the naughty step or to wear an embarrassing hat for the afternoon.

Said truculent child did as truculent children do: instead of accepting its punishment with good grace, understanding it has erred, and treating the whole incident as a teachable moment, it did its best to work around it. Swap transactions that were already on foot before the commencement of the new regulations were “grandfathered” and were not, specifically, required to be margined. Certain classes of transaction — not many, in the end — were out of scope for compulsory margin. So the industry prepared for a world where single ISDA Master Agreement might have two CSAs: a regulatory one for in-scope products after the commencement date, and a non-regulatory one for grandfathered products and those out of scope after the commencement date.

Now running two CSAs on the same ISDA is a recipe for confusion. The whole point of a CSA is to be a single aggregating force, aggregating and boiling down all these diverse exposures and liabilities to a single number, and now there were two Credit Support Balances, two sets of Credit Support Eligibility Criteria, two Credit Support Balances and so on: in fact, twenty different defined terms in the 2016 NY VM CSA (seventeen in the 2016 VM CSA). You can imagine this could become very difficult for the poor bugger in ops that is handling this across 25,000 ISDA arrangements.

ISDA’s crack drafting squad™ elegant solution was to suffix the regulatory margin versions of these terms with a “(VM)”.