Initial margin: Difference between revisions

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 {{a|g|{{Types of margin}}}}Also known, to ISDAphiles, [[ISDA ninja|ninjas]] and the men and women of {{icds}} as “{{csaprov|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]].
+So [[initial margin]] is a defence against ''potential future [[indebtedness]]'', should it happen, not ''current'' [[indebtedness]]. Therefore, where surrendered in [[cash]] directly to the [[lender]]/counterparty, [[initial margin]] creates ''negative'' indebtedness. In other words, the ''holder'' of [[initial margin]] is indebted to the ''provider'' of it. A counter-intuitive result to be sure; and part of the reason that, generally, [[regulatory initial margin]] is required to be posted in the form of securities or other custodial assets, and to a third party custodian, to whom (in theory) neither party has any credit exposure.
-So [[initial margin]] is a defence against ''future potential indebtedness'', should it happen, not ''current'' indebtedness. Therefore, where surrendered in [[cash]] directly to the [[lender]]/counterparty, initial margin creates ''negative'' indebtedness. In other words, the ''holder'' of [[initial margin]] is indebted to the ''provider'' of it. A counter-intuitive result to be sure; and part of the reason that, generally, [[regulatory initial margin]] is required to be posted in the form of securities or other custodial assets, and to a third party custodian, to whom (in theory) neither party has any credit exposure.
+===[[Stock lending]]===
 Another example of this counter-intuitive effect is in the [[stock loan]] market, where the [[haircut]] on the collateral leg is effectively [[initial margin]], and since the {{gmslaprov|Borrower}} title-transfers (say) 105% of the value of the {{gmsla|Borrowed Securities}} to the {{gmslaprov|Lender}}, in fact the {{gmslaprov|Lender}} is indebted to the {{gmslaprov|Borrower}} and not the other way around. Hence the [[Pledge GMSLA]] of 2018, to solve this exact problem for bank counterparties’ LRD calculations.
+===Compare and contrast===
+Compare, by way of contrast, [[variation margin]].
 {{sa}}
 *[[Margin call]]