Regulatory initial margin

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Reegulatory margin for initial margin (known to ISDA ninjas as an “Independent Amount”, as opposed to regulatory variation margin. Introduced later and with a lot more complexity, because — in order to properly address credit risks between the parties and not aggravate them, regulatory initial margin can’t be transferred outright. that means, no title transfer of securities, and no cash.

You what?

It is true, my little striplings. In the old world, Independent Amounts were transferred outright to the Transferee, by title transfer.^[1] This created a conceptual issue for regulators, who were trying to minimise credit exposure between the parties: a title transfer of collateral to cover an Exposure that doesn’t yet — and might never — exist creates a negative exposure, because the holder of an Independent Amount would be indebted to the Transferor for its return.^[2]

↑ Under an English law 1995 CSA, at any rate. But the effect was the same where rehypothecation was allowed under a New York law 1994 NY CSA too.
↑ Hence, regulatory initial margin cannot be cash, and must be pledged and not title transferred.

[1] Under an English law 1995 CSA, at any rate. But the effect was the same where rehypothecation was allowed under a New York law 1994 NY CSA too.

[2] Hence, regulatory initial margin cannot be cash, and must be pledged and not title transferred.

[1]

[2]