Template:Csa Eligible Collateral summ
{{{{{1}}}|Eligible Collateral}} — with or without the (VM) suffix, and finding it tremendously irritating as he does, JC will largely go without — describes the kinds of collateral that you may deliver under your CSA and expect to be recognised for it. In the ancient CSAs this is all very contractual and cash and a variety of types of corporate and government bonds might be acceptable; in the modern CSAs even though it looks like you can choose what you like, right, regulators’ rules, market conventions mean in practice variation margin is limited to cash in certain currencies. This makes a lot of the erstwhile complication and Ballschmerzen of CSA operations goes away.
| CSA Year | Margin | Gov. Law | Holder | Eligible Collateral |
|---|---|---|---|---|
| 1994 | IM and VM | NY | Other party | Cash, Government Securities, Investment Grade Corporate Debt |
| 1995 | IM and VM | English | Other party | Cash, Government Securities, Investment Grade Corporate Debt, Equities |
| 2016 | Reg VM and optional IM | NY | Other party | Cash only (in practice) |
| 2016 | Reg VM and optional IM | English | Other party | Cash only (in practice) |
| 2018 | Reg IM only | NY | Custodian | Cash, government bonds, corporate bonds |
| 2018 | Reg IM only | English | Custodian | Cash, government bonds, corporate bonds |
You may wonder why regulatory VM is cash and regulatory IM is not, and premium subscribers can find out.
Initial margin
For reasons best known to themselves there are curious rules in the US relating to initial margin which lead counterparties to use different ISDA CSA forms on different occasions. The details and variegation at play here — are you an SBSD counterparty? Are you subject to EMIR too? Is the AANA threshold met? — are all too ghastly for the JC to presently get into, other than to say the tiny peripheral benefits you get from gaming the fractal edges of the system of rules are most likely not worth it and it is probably better to have a single, maximally conservative, theory of the game: all that being well and good, of course, if your counterparties have a different view of the world, or a different idea what is the maximally conservative theory of the game.
This is what happens if you try to standardise and centralise a market that was designed to be unstandardised and decentralised, but still.
The dark side of margin
On the subject of pained exegeses which no-one will heed, the JC also has an impassioned essay about why bilateral variation margin may have a destabilising effect on the broader financial system, potentially weakening swap dealers’ liquidity and risk positions — a risk which was admirably demonstrated during the Archegos fiasco.
But no-one listens to the JC, so you should treat this as extended universe fan fiction only.