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| [[3(c)(iii) - IM CSD Provision|The point]] where, with the greatest of respect, the {{imcsd}} gets ''totally'' over the front of its skis. Had it just reined in its enthusiasm, and limited itself to dealing with *just* regulatory IM, that actually has to be posted, compulsorily, to a third party custodian, this document would have been shorter, less controversial, and ''way'' easier to understand. But no: {{icds}} went into bafflement overdrive.
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| A casual reader might also wonder whether someone is having a laugh. If {{icds}} wanted to, they could scarcely have made this more convoluted, as our nutshell summary should indicate.
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| The problem {{icds}} was trying to “solve for” was the kind of counterparty who is ''already'' taking initial margin and wants to keep doing that, somehow, even now the technocrats have railroaded their way into this age-old process and mandated it by regulation. These include, for example, [[prime brokerage]] clients, who might have swap positions “cross-margined” with a wider range of physical and futures positions that the PB will want to margin and rehypothecate against in one place.
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| But it might be as simple as a dealer who has set independent amounts higher than those mandated by the regulators, and wants to keep them.
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| So the {{imcsd}} contemplates, on one hand, ''regulatory'' [[initial margin]], which it calls “{{imcsdprov|Margin Amount (IM)}}”, and ''non''-regulatory [[initial margin]], which it labels with fond redolence to the old days of {{csaprov|Independent Amount}}s, as “{{imcsdprov|Margin Amount (IA)}}”.
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| ===The theory===
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| Let’s call your existing, pre-regulatory initial margin arrangement your “IA”, and the regulatory requirement “IM”. IA could be more than IM, less than IM, or (unlikely, but let’s say) the same.
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| The other difference is that ''usually'' you paid your IA to your counterparty. Reg IM you must pay to a third-party [[custodian]], subject to a security arrangement and an [[account control agreement]], to avoid exacerbating counterparty credit risk the other way. The regulatory regime is therefore economically not the same, as the recipient cannot monetise the regulatory initial margin it receives, or use it elsewhere in its business. This [[reuse]] right is important for those involved in [[margin lending]].
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| So once the [[Reg IM]] comes in, the question becomes (a) do you still want your old IA delivered to you so you can reuse it — in total, or just any of it in excess of the new IM requirement?
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| The {{imcsd}} proposes three ways of solving this:
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| *'''Distinct Margin Flow Approach''': you pay IM under the {{imcsd}} and pay the whole IA whack, separately, to the counterparty under the {{imcsdprov|Other CSA}}. Obviously enough, customers are not going to like this.
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| *'''Allocated Margin Flow Approach''': you pay the Reg IM portion of the IA under the {{imcsd}}, and pay any excess over that in the IA to the counterparty under the {{imcsdprov|Other CSA}}. To the JC’s way of thinking, this is the only one that makes any sense;
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| *'''Greater of Margin Flow Approach''': You pay the ''whole'' of the IA (or the IM, if it is greater) under the {{imcsd}} and ''nothing'' under the {{imcsdprov|Other CSA}}. We don’t think the broker will ever give up the right to reuse excess IA by steering that to a third party custodian, and nor, really should the client, since their implied financing rates will surely rise.
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