Template:Deliveryandreturnamounts

Calculating {{{{{1}}}prov|Delivery Amount}}s and {{{{{1}}}prov|Return Amount}}s

{{{{{1}}}prov|Delivery Amount}}s

First: work out your {{{{{1}}}prov|Credit Support Amount}}. This is:

{{{{{1}}}prov|Transferee}}’s {{{{{1}}}prov|Exposure}} + Net {{{{{1}}}prov|Independent Amount}}s (IF ANY)

Second: calculate the {{{{{1}}}prov|Value}} of the {{{{{1}}}prov|Transferor}}’s {{{{{1}}}prov|Credit Support Balance}}. This is basically the prevailing value of the {{{{{1}}}prov|Eligible Credit Support}} (and income on it) that the {{{{{1}}}prov|Transferor}} has ponied up at that time.
Third: Deduct the {{{{{1}}}prov|Credit Support Balance}} from the {{{{{1}}}prov|Credit Support Amount}}. Fourth: If the difference from the sum you did in (3):

is less than zero, KEEP QUIET. If you are lucky, the other guy won’t ask you for a {{{{{1}}}prov|Return Amount}}.

is more than zero but less than the {{{{{1}}}prov|Minimum Transfer Amount}}, also KEEP QUIET. No {{{{{1}}}prov|Delivery Amount}} for you today, because you haven’t exceeded the {{{{{1}}}prov|Minimum Transfer Amount}}, so you are not entitled to one.

is more than the {{{{{1}}}prov|Minimum Transfer Amount}} you can demand the whole amount (I.e., not just the bit over the {{{{{1}}}prov|MTA}}).

{{{{{1}}}prov|Return Amount}}s

Basically the converse of a {{{{{1}}}prov|Delivery Amount}}. In this case you deduct the {{{{{1}}}prov|Credit Support Amount}} from the {{{{{1}}}prov|Credit Support Balance}}.

What about in-flight {{{{{1}}}prov|Credit Support}} deliveries?

So yesterday you met a margin call by delivering a bond the standard settlement cycle for which means it won’t arrive till the day after tomorrow. How is this “in-flight collateral” treated for the purpose of today’s margin call? It’s treated as having already been made. However, if your counterparty fails in the meantime (before the bond has settled, and assuming ultimately it never does), it would count as an Unpaid Amount which would factor into your close-out calculation.

At first blush this seems an odd result, but the risk is a time value risk associated with the collateral, not a counterparty risk per se. You accepted it when you agreed to {{{{{1}}}prov|Eligible Credit Support}} with a long a settlement cycle in the first place. If you don't want that time-value risk, don’t agree to collateral with a long settlement cycle.

Picturesque speech

Bonus learning for free: In a subtraction, the sum being subtracted is the “subtrahend” and the sum it is being subtracted from is the “minuend”.