Template:In-flight credit support: Difference between revisions
Amwelladmin (talk | contribs) No edit summary |
Amwelladmin (talk | contribs) |
||
| Line 1: | Line 1: | ||
====What about in-flight | ====What about in-flight 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]]? | 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]]? | ||
{{quote|“''(adjusted to include any prior {{{{{1}}} | It’s treated as if you have already made it. This is the significance of the parenthetical: | ||
{{quote|“''(adjusted to include any prior {{{{{1}}}|Delivery Amount}} and to exclude any prior {{{{{1}}}|Return Amount}}, the transfer of which, in either case, has not yet been completed and for which the relevant {{{{{1}}}|Settlement Day}} falls on or after such {{{{{1}}}|Valuation Date}}).''” }} | |||
However, if your [[counterparty]] fails in the meantime (before the [[bond]] has settled, and assuming ultimately it never does), it would count as an {{isdaprov|Unpaid Amount}} which would factor into your [[Close-out Amount - ISDA Provision|close-out calculation]]. | However, if your [[counterparty]] fails in the meantime (before the [[bond]] has settled, and assuming ultimately it never does), it would count as an {{isdaprov|Unpaid Amount}} which would factor into your [[Close-out Amount - ISDA Provision|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}}} | 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}}}|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]]. | ||
Revision as of 11:11, 25 March 2024
What about in-flight 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 if you have already made it. This is the significance of the parenthetical:
“(adjusted to include any prior {{{{{1}}}|Delivery Amount}} and to exclude any prior {{{{{1}}}|Return Amount}}, the transfer of which, in either case, has not yet been completed and for which the relevant {{{{{1}}}|Settlement Day}} falls on or after such {{{{{1}}}|Valuation Date}}).”
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}}}|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.