Margin excess: Difference between revisions
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{{a|pb|}} | {{a|pb|}}[[Margin excess]], or [[excess margin]], is any amount standing to a customer’s account with a [[prime broker]] over the minimum margin that the [[prime broker]] requires the customer to hold against its [[liabilities]]. This may be in the form of unrealised profit from live transactions, [[variation margin]] on swap positions credited to the customer’s account, or excess assets the customer has paid for but holds with the prime broker as [[custodian]]. | ||
[[Excess margin]], while the PB holds it, is subject to all the usual [[Security collateral arrangement|security arrangements]]; the only difference is that the customer does not ''have'' to let the PB hold it; but customers habitually do because it is convenient — they have to hold it somewhere, so why not with the good old [[prime broker]]? — and because it tends to make their [[prime broker]]s feel better about things, even if perhaps they shouldn’t.<ref>See {{CS report}}</ref> | |||
The reality about just when a customer may ask for its excess margin back — whenever it likes, in the normal run of things — can startle a complacent risk officer, but what a startled risk officer can then do if it doesn’t terribly like the idea of giving the [[margin excess]] back — reclassifying it as margin by means of a [[margin adjustment]] — tends to make the risk officer feel a bit better, even though she might not quite believe it. | The reality about just when a customer may ask for its excess margin back — whenever it likes, in the normal run of things — can startle a complacent risk officer, but what a startled risk officer can then do if it doesn’t terribly like the idea of giving the [[margin excess]] back — reclassifying it as margin by means of a [[margin adjustment]] — tends to make the risk officer feel a bit better, even though she might not quite believe it. | ||
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*[[Margin call]] and [[margin adjustment]] | *[[Margin call]] and [[margin adjustment]] | ||
*[[Archegos]] | *[[Archegos]] | ||
{{ref}} | |||
Revision as of 21:21, 16 August 2021
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Prime Brokerage Anatomy™
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Margin excess, or excess margin, is any amount standing to a customer’s account with a prime broker over the minimum margin that the prime broker requires the customer to hold against its liabilities. This may be in the form of unrealised profit from live transactions, variation margin on swap positions credited to the customer’s account, or excess assets the customer has paid for but holds with the prime broker as custodian.
Excess margin, while the PB holds it, is subject to all the usual security arrangements; the only difference is that the customer does not have to let the PB hold it; but customers habitually do because it is convenient — they have to hold it somewhere, so why not with the good old prime broker? — and because it tends to make their prime brokers feel better about things, even if perhaps they shouldn’t.[1]
The reality about just when a customer may ask for its excess margin back — whenever it likes, in the normal run of things — can startle a complacent risk officer, but what a startled risk officer can then do if it doesn’t terribly like the idea of giving the margin excess back — reclassifying it as margin by means of a margin adjustment — tends to make the risk officer feel a bit better, even though she might not quite believe it.