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Template:Deliveryandreturnamounts: Difference between revisions
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===={{{{{1}}}prov|Delivery Amount}}s==== | ===={{{{{1}}}prov|Delivery Amount}}s==== | ||
'''First''': work out your '''{{{{{1}}}prov|Credit Support Amount}}'''. This is: <br> | '''First''': work out your '''{{{{{1}}}prov|Credit Support Amount}}'''. This is: <br> | ||
:''{{{{{1}}}prov|Transferee}}’s {{{{{1}}}prov|Exposure}} + Net {{{{{1}}}prov|Independent Amount}}s (IF ANY)<ref>In the {{2016csa}} there really | :''{{{{{1}}}prov|Transferee}}’s {{{{{1}}}prov|Exposure}} + Net {{{{{1}}}prov|Independent Amount}}s (IF ANY)<ref>In the {{2016csa}} there really shouldn’t be {{tag|IA}} as it kind of defeats the regulatory goal of marking actual exposures to market, but there may be, since ISDA caved and retrofitted the {{2016csa}} with a an {{vmcsaprov|Independent Amount}} section</ref>'' <br> | ||
'''Second''': calculate the {{{{{1}}}prov|Value}} of the {{{{{1}}}prov|Transferor}}’s {{{{{1}}}prov|Credit Support Balance}}. This is basically the prevailing value of the {{{{{1}}}prov|Eligible Credit Support}} (and income on it) that the {{{{{1}}}prov|Transferor}} has ponied up at that time. <br> | '''Second''': calculate the {{{{{1}}}prov|Value}} of the {{{{{1}}}prov|Transferor}}’s {{{{{1}}}prov|Credit Support Balance}}. This is basically the prevailing value of the {{{{{1}}}prov|Eligible Credit Support}} (and income on it) that the {{{{{1}}}prov|Transferor}} has ponied up at that time. <br> | ||
'''Third''': Deduct the {{{{{1}}}prov|Credit Support Balance}} from the {{{{{1}}}prov|Credit Support Amount}}. | '''Third''': Deduct the {{{{{1}}}prov|Credit Support Balance}} from the {{{{{1}}}prov|Credit Support Amount}}. | ||
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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 having already been made. 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]]. | 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 having already been made. 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}}}prov|Eligible Credit Support}} with a long a [[settlement cycle]] in the first place. If you | 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}}}prov|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]]. | ||
====Picturesque speech==== | ====Picturesque speech==== | ||
''Bonus learning for free: In arithmetic, a sum being ''subtracted'' is the “[[subtrahend]]” and the sum it is being subtracted from is the “[[minuend]]”.'' <br> | ''Bonus learning for free: In arithmetic, a sum being ''subtracted'' is the “[[subtrahend]]” and the sum it is being subtracted from is the “[[minuend]]”.'' <br> | ||