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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''”, [[initial margin]] is the amount of [[collateral]] a [[broker]] requires from its [[counterparty]] up front, notwithstanding any change in the [[mark-to-market]] value of the transaction. So [[initial margin]] is a precaution against potential ''future'' [[indebtedness]], should it happen, not ''current'' [[indebtedness]]. Current indebtedness is covered by [[variation margin]]. | |||
Therefore, where surrendered in [[cash]] directly to the [[lender]]/counterparty — i.e., not by way of [[client money]] or anything like that<ref>Though there it creates [[indebtedness]] from the [[bank]] that holds the [[cash]], of course.</ref> — [[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]]. | Compare, by way of contrast, [[variation margin]]. | ||
{{sa}} | |||
*[[Margin call]] | |||
*Independent Amount, the {{csa}} and the [[CSA Anatomy]] generally | *{{csaprov|Independent Amount}}, the {{csa}} and the [[CSA Anatomy]] generally | ||
*[[Pledge GMSLA]] | |||
*{{tag|EMIR}}, and in particular {{emirprov|uncleared derivatives margin}} | *{{tag|EMIR}}, and in particular {{emirprov|uncleared derivatives margin}} | ||
{{Ref}} | |||
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