Initial margin
Also known, to ISDAphiles, 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.
Initial margin and variation margin
Margin comes in two forms.
- Variation margin, or VM, is collateral against the present mark-to-market value of the transaction exposure.
- If you don’t have this and the counterparty goes bust, you’re whistling.
- In many kinds of margin loan, VM will take the form of the asset in question itself.
- Initial margin, or IM, is additional collateral in excess of the present mark-to-market value of the transaction exposure.
- This guards against sudden adverse movements in the value of the collateral or the exposure between margin calls.
- IM is calculated by reference to the expected maximum loss in value of the transaction (and the existing margin) over the margin period.
See also
- Margin call
- Independent Amount, the 1995 CSA and the CSA Anatomy generally
- EMIR, and in particular uncleared derivatives margin
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