Template:Deliveryandreturnamounts
Calculating Delivery Amounts and Return Amounts
Delivery Amounts
First: work out your Credit Support Amount. This is:
- Transferee’s Exposure + Net Independent Amounts (IF ANY)[1]
Second: calculate the Value of the Transferor’s Credit Support Balance. This is basically the prevailing value of the Eligible Credit Support (and income on it) that the Transferor has ponied up at that time.
Third: Deduct the Credit Support Balance from the Credit Support Amount.
Fourth: If the difference from the sum you did in (3):
- is less than zero, KEEP QUIET. If you are lucky, the other guy won’t ask you for a Return Amount.
- it is more than zero but less than the Minimum Transfer Amount, also KEEP QUIET. No Delivery Amount for you today.
- it is more than the Minimum Transfer Amount you can demand the whole amount (I.e., not just the bit over the MTA).
Return Amount
Basically the converse of a Delivery Amount. In this case you deduct the Credit Support Amount from the Credit Support Balance.
What about in-flight collateral deliveries?
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 that “in-flight collateral” treated for the purpose of today’s margin call? It's treated as having already been made. However, if the counterparty fails in the meantime and the bond hasn’t settled (and ultimately never does), it would count as an Unpaid Amount which would factor into your closeout calculation.
At first blush this seems an odd result, but the risk is a time value risk which one accepts when one agrees to Eligible Credit Support with a long a settlement cycle. If you don't want the risk, require cash only.
Picturesque speech
Bonus learning for free: In a subtraction, the sum being subtracted is the subtrahend and the sum it is being subtracted from is the minuend.
- ↑ In the 2016 VM CSA there really shouldn't be 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 CSA with a an Independent Amount section