Initial margin: Difference between revisions

{{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.