Margin excess

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Any amount standing to a customer’s account with a prime broker in excess of the minimum margin that the prime broker requires the customer to hold against its liabilities. This 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. Excess margin, while the PB holds it, is subject to all the usual security arrangements; the only difference is that the customer does not have to let the PB hold excess margin; but customers habitually do because it is convenient — they have to hold it somewhere, so why not with the prime broker? — and because it tends to make their brokers feel better about things, even if perhaps they shouldn’t.

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 if it doesn’t terribly like the idea of giving the margin excess back — reclassifying it as margin by means of a margin adjustment — tends to make the risk officer feel a bit better, even though she might not quite believe it.

See also

• Margin call and margin adjustment
• Archegos