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But better still would be just straight out capitalising interest, with no option to transfer it. Perhaps this is just me. | But better still would be just straight out capitalising interest, with no option to transfer it. Perhaps this is just me. | ||
====Interest Amounts under the 1995 CSA==== | =====Interest Amounts under the 1995 CSA===== | ||
It really ought to be quite simple, and in the {{csa}} it is: if a {{csaprov|Transferor}} has posted [[cash]] — probably less likely back in the day, but in the world of [[regulatory margin]], ''de rigueur'' nowadays — then you get [[interest]] on it — as long as paying interest wouldn’t, in itself, trigger a call for a further {{csaprov|Delivery Amount}} by the {{csaprov|Transferor}} — thus precipitating a (short) game of operational ping-pong between the two parties’ back office teams. | It really ought to be quite simple, and in the {{csa}} it is: if a {{csaprov|Transferor}} has posted [[cash]] — probably less likely back in the day, but in the world of [[regulatory margin]], ''de rigueur'' nowadays — then you get [[interest]] on it — as long as paying interest wouldn’t, in itself, trigger a call for a further {{csaprov|Delivery Amount}} by the {{csaprov|Transferor}} — thus precipitating a (short) game of operational ping-pong between the two parties’ back office teams. | ||
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But as we know, {{csaprov|Exposure}}s ''don’t'' just quietly sit there. If they did, there wouldn’t be any need for initial margin, and collecting even [[variation margin]] would be less fraught. So if the {{csaprov|Transferee}}’s {{csaprov|Exposure}} has increased, the arrival of that interest might serve to fill a hole in the existing coverage, in which case, why pay it away only to ask for it back again? | But as we know, {{csaprov|Exposure}}s ''don’t'' just quietly sit there. If they did, there wouldn’t be any need for initial margin, and collecting even [[variation margin]] would be less fraught. So if the {{csaprov|Transferee}}’s {{csaprov|Exposure}} has increased, the arrival of that interest might serve to fill a hole in the existing coverage, in which case, why pay it away only to ask for it back again? | ||
====Interest Amounts under the 2016 VM CSA==== | =====Interest Amounts under the 2016 VM CSA===== | ||
But in the {{vmcsa}} things get a little more complex. There follows an excruciating torture session for innocent and well-loved members of her majesty’s vocabulary, and all to get across a simple point. In the nutshell to the right I have tried to simplify the drafting but I am a bit jet-lagged and it is testing even my patience. But know this: {{vmcsaprov|Interest Payment}} is a fiddly, time-and resource-consuming pain which will inevitably lead to error, confusion and name-calling. {{vmcsaprov|Interest Adjustment}} — just adding accrued interest to your {{vmcsaprov|Credit Support Balance}} — is far simpler and more elegant: none of this Kafkaesque complexity for netting and offsetting individual payments. It all comes out in the wash. | But in the {{vmcsa}} things get a little more complex. There follows an excruciating torture session for innocent and well-loved members of her majesty’s vocabulary, and all to get across a simple point. In the nutshell to the right I have tried to simplify the drafting but I am a bit jet-lagged and it is testing even my patience. But know this: {{vmcsaprov|Interest Payment}} is a fiddly, time-and resource-consuming pain which will inevitably lead to error, confusion and name-calling. {{vmcsaprov|Interest Adjustment}} — just adding accrued interest to your {{vmcsaprov|Credit Support Balance}} — is far simpler and more elegant: none of this Kafkaesque complexity for netting and offsetting individual payments. It all comes out in the wash. | ||
====When you might want Interest Payment==== | ====When you might want Interest Payment==== | ||
Now there ''is'' a “use-case” for the Interest Payment method — it’s pretty niche, though — which we will talk about over at the premium JC. | Now there ''is'' a “use-case” for the Interest Payment method — it’s pretty niche, though — which we will talk about over at the premium JC. |