Margin excess: Difference between revisions
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{{a|pb|{{subtable| | {{a|pb|{{subtable| | ||
===Margining: a primer=== | ===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]]. | {{pb margining capsule}}}}}}[[Margin excess]], or “[[excess margin]]”, is ''potential'' margin: any amount standing to a customer’s account with a [[prime broker]] ''over and above'' 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. | 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. | ||
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'''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. | '''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. | ||
===Is excess margin “as good as” initial margin?=== | |||
Yes — and no. This is the subtitle to that grand Shakespeareian tragedy of our times, ''[[Archegos|The Merchant of Menace]]''. | |||
As a starting proposition, excess customer cash you hold, and that you may, at a [[commercially reasonable|(commercially reasonable)]] whim, declare ''instantly'' to be initial margin is, in legal theory, near enough the same as initial margin. If a client should ask you for it, you can, on the spot, recharacterise it and refuse. ''But'' this changes should there be any notice period between your ''pronouncement'' that it is initial margin, and it formally becoming, under the terms of your contract, initial margin. Because in this windy period a customer may, as TCWMNBN ''did'', demand that you pay it back. | |||
Secondly, bear in mind the human aspects at play, as so saucily expounded in the {{CS report}}. | |||
{{apocalypse maxim}} | |||
{{sa}} | {{sa}} | ||