Initial margin: Difference between revisions
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{{g}}Also known, to ISDAphiles, as {{csaprov|Independent Amount}} and to aggressive predictive text engines as “''I’m''”, this is the amount of collateral or [[margin]] a [[counterparty]] requires up front, notwithstanding any change in the [[mark-to-market]] value of the transaction. | {{a|g|{{Types of margin}}}}Also known, to ISDAphiles, [[ISDA ninja|ninjas]] and the men and women of {{icds}} as “{{csaprov|Independent Amount}}” and to aggressive predictive text engines as “''I’m''”, this is the amount of collateral or [[margin]] a [[counterparty]] requires up front, notwithstanding any change in the [[mark-to-market]] value of the transaction. | ||
Compare, by way of contrast, [[variation margin]]. | Compare, by way of contrast, [[variation margin]]. | ||
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So [[initial margin]] is a defence against ''future potential indebtedness'', should it happen, not ''current'' indebtedness. Therefore, where surrendered in [[cash]] directly to the [[lender]]/counterparty, initial margin creates ''negative'' indebtedness. In other words, the ''holder'' of [[initial margin]] is indebted to the ''provider'' of it. A counter-intuitive result to be sure; and part of the reason that, generally, [[regulatory initial margin]] is required to be posted in the form of securities or other custodial assets, and to a third party custodian, to whom (in theory) neither party has any credit exposure. | |||
Another example of this counter-intuitive effect is in the [[stock loan]] market, where the [[haircut]] on the collateral leg is effectively [[initial margin]], and since the {{gmslaprov|Borrower}} title-transfers (say) 105% of the value of the {{gmsla|Borrowed Securities}} to the {{gmslaprov|Lender}}, in fact the {{gmslaprov|Lender}} is indebted to the {{gmslaprov|Borrower}} and not the other way around. Hence the [[Pledge GMSLA]] of 2018, to solve this exact problem for bank counterparties’ LRD calculations. | |||
{{sa}} | {{sa}} | ||
*[[Margin call]] | *[[Margin call]] | ||
*{{csaprov|Independent Amount}}, the {{csa}} and the [[CSA Anatomy]] generally | *{{csaprov|Independent Amount}}, the {{csa}} and the [[CSA Anatomy]] generally | ||
*{{tag|EMIR}}, and in particular {{emirprov|uncleared derivatives margin}} | *{{tag|EMIR}}, and in particular {{emirprov|uncleared derivatives margin}} | ||
Revision as of 13:33, 20 March 2020
Initial margin and variation marginMargin comes in two forms.
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Also known, to ISDAphiles, ninjas and the men and women of ISDA’s crack drafting squad™ as “Independent Amount” and to aggressive predictive text engines as “I’m”, this is the amount of collateral or margin a counterparty requires up front, notwithstanding any change in the mark-to-market value of the transaction.
Compare, by way of contrast, variation margin.
So initial margin is a defence against future potential indebtedness, should it happen, not current indebtedness. Therefore, where surrendered in cash directly to the lender/counterparty, initial margin creates negative indebtedness. In other words, the holder of initial margin is indebted to the provider of it. A counter-intuitive result to be sure; and part of the reason that, generally, regulatory initial margin is required to be posted in the form of securities or other custodial assets, and to a third party custodian, to whom (in theory) neither party has any credit exposure.
Another example of this counter-intuitive effect is in the stock loan market, where the haircut on the collateral leg is effectively initial margin, and since the Borrower title-transfers (say) 105% of the value of the 2010 GMSLA to the Lender, in fact the Lender is indebted to the Borrower and not the other way around. Hence the Pledge GMSLA of 2018, to solve this exact problem for bank counterparties’ LRD calculations.
See also
- Margin call
- Independent Amount, the 1995 CSA and the CSA Anatomy generally
- EMIR, and in particular uncleared derivatives margin