Margin excess: Difference between revisions
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{{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]]. | {{a|pb|{{subtable| | ||
===Margining: a primer=== | |||
{{pb margining capsule}}}}}}[[Margin excess]], or “[[excess margin]]”, is ''potential'' margin: 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]]. Margin excess 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]]. | |||
[[ | The [[prime broker]] holds or controls it — possession is nine-tenths of the law — but, as long as it stays as “margin excess” — see below — must give it back to the customer on request. | ||
As long as you have a margin excess, you shouldn’t need to make a [[margin call]] — a [[margin adjustment]] will do. | |||
While the PB holds excess margin it is subject to all the usual [[Security collateral arrangement|security arrangements]]; the only difference is that the customer is not ''obliged'' to let the PB hold it, as such; 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. And as long as the prime broker has the right to [[Margin adjustment|adjust margin]] ''at any time'', it is justified in feeling quite good about it. If the prime broker must give even a brief notice period ''before'' adjusting, then things are quite a bit more fraught. | |||
===“As long as it stays as excess margin”=== | |||
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, should it not terribly ''like'' the idea of giving the margin excess back — is to immediately reclassify it as ''required'' [[margin]] by means of a [[margin adjustment]]. | |||
'''Careful, though''': all this, however, is quickly undermined — as those at Credit Suisse in charge of risking The Client Who Shall Not Be Named would tell you, if any of them were left — if there is any notice period before a margin adjustment takes effect, or if there is a margin lock-up. | |||
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Revision as of 11:24, 18 August 2021
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Prime Brokerage Anatomy™
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Margin excess, or “excess margin”, is potential margin: 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. Margin excess 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.
The prime broker holds or controls it — possession is nine-tenths of the law — but, as long as it stays as “margin excess” — see below — must give it back to the customer on request.
As long as you have a margin excess, you shouldn’t need to make a margin call — a margin adjustment will do.
While the PB holds excess margin it is subject to all the usual security arrangements; the only difference is that the customer is not obliged to let the PB hold it, as such; 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. And as long as the prime broker has the right to adjust margin at any time, it is justified in feeling quite good about it. If the prime broker must give even a brief notice period before adjusting, then things are quite a bit more fraught.
“As long as it stays as excess margin”
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, should it not terribly like the idea of giving the margin excess back — is to immediately reclassify it as required margin by means of a margin adjustment.
Careful, though: all this, however, is quickly undermined — as those at Credit Suisse in charge of risking The Client Who Shall Not Be Named would tell you, if any of them were left — if there is any notice period before a margin adjustment takes effect, or if there is a margin lock-up.
See also
References
- ↑ But see the vexed topic of margin lock-up, which significantly constrains the PB’s flexibility.
- ↑ Archegos had a three day notice period, which interposed some rather gristly squeaky-bum time between your adjustment and it going live, which the Credit Suisse risk team weren’t willing to endure.