Margin Amount (IM) - IM CSD Provision
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2018 ISDA Credit Support Deed (IM) (English law)
Paragraph 3(c)(i) in a Nutshell™ Use at your own risk, campers!
Full text of Paragraph 3(c)(i)
Related agreements and comparisons
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Template:M comp disc 2018 CSD 3(c)(i)
Summary
Regulatory initial margin
Margin Amount (IM) is the snappy, memorable label for that portion of one’s initial margin burden that is imposed directly by one’s local regulators. This is the compulsory part of initial margin that you have to pony up, by law, even if neither you nor your counterparty want to. It would be nice had the drafting said this a little less obliquely — you know, they might have called this “Regulatory IM”, even, but look: I wish feijoas grew in England, and that won’t happen either, so there’s no point getting upset about it.
A Chargor must post Margin Amount (IM) to a third party Custodian (IM) who will hold it out of harm’s way and subject to a security interest in favour of the Secured Party and an account control agreement determining who gets to say what happens to it and and when.
Since it is held out of harm’s way, neither the Chargor nor the Secured Party can use it, and it sits immobilised, a permanent dead weight on the capital efficiency of the world’s financial markets. But everyone is safer that way — unless you are a hardcore modernist, a little redundancy is no bad thing — so we shouldn’t feel too bad about it.
To be contrasted and not, however easy it may be, confused with Margin Amount (IA).
Non-regulatory initial margin
Margin Amount (IA) is the portion of one’s initial margin burden that no-one (except your dealer) made you pay.
As such, you usually transfer Margin Amount (IA) directly to the swap dealer, if you are a limey (or under the influence of the lime-peddlers), by means of title transfer and not pledge, and almost certainly your dealer won’t agree to give you any Margin Amount (IA) for any exposure you feel you have to it. If you are a particularly big or stampy-footed customer, you might persuade your dealer to use the Greater of Margin Flow (IM/IA) Approach, in which case you will pay all this extra non-regulatory initial margin to the Custodian (IM) as well the regulatory initial margin and all of it will be held out of harm’s way, though be careful for what you wish for: your dealer may charge you bigger spreads as a result because it can’t optimise its funding position on initial margin you haven’t physically given it.