Margin excess: Difference between revisions

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-{{a|pb|}}[[Margin excess]], or [[excess margin]], is any amount standing to a customer’s account with a [[prime broker]] over the minimum margin that the [[prime broker]] requires the customer to hold against its [[liabilities]]. This may be in the form of unrealised profit from live transactions, [[variation margin]] on swap positions credited to the customer’s account, or excess assets the customer has paid for but holds with the prime broker as [[custodian]].
+{{a|pb|{{subtable|
+===Margining: a primer===
+{{pb margining capsule}}}}}}[[Margin excess]], or “[[excess margin]]”, is ''potential'' margin: any amount standing to a customer’s account with a [[prime broker]] over the minimum margin that the [[prime broker]] requires the customer to hold against its [[liabilities]]. Margin excess may be in the form of unrealised profit from live transactions, [[variation margin]] on swap positions credited to the customer’s account, or excess assets the customer has paid for but holds with the prime broker as [[custodian]].
-[[Excess margin]], while the PB holds it, is subject to all the usual [[Security collateral arrangement|security arrangements]]; the only difference is that the customer does not ''have'' to let the PB hold it; but customers habitually do because it is convenient — they have to hold it somewhere, so why not with the good old [[prime broker]]? — and because it tends to make their [[prime broker]]s feel better about things, even if perhaps they shouldn’t.<ref>See {{CS report}}</ref>
+The [[prime broker]] holds or controls it — possession is nine-tenths of the law — but, as long as it stays as “margin excess” — see below — must give it back to the customer on request.
+As long as you have a margin excess, you shouldn’t need to make a [[margin call]] — a [[margin adjustment]] will do.
+While the PB holds excess margin it is subject to all the usual [[Security collateral arrangement|security arrangements]]; the only difference is that the customer is not ''obliged'' to let the PB hold it, as such; but customers habitually do, because it is convenient — they have to hold it somewhere, so why not with the good old [[prime broker]]? — and because it tends to make their [[prime broker]]s feel better about things.  And as long as the prime broker has the right to [[Margin adjustment|adjust margin]] ''at any time'', it is justified in feeling quite good about it. If the prime broker must give even a brief notice period ''before'' adjusting, then things are quite a bit more fraught.
+===“As long as it stays as excess margin”===
+The reality about just when a customer may ask for its excess margin back — “whenever it likes”, in the normal run of things — can startle a complacent risk officer, but what a startled risk officer can then do, should it not terribly ''like'' the idea of giving the margin excess back — is to immediately reclassify it as ''required'' [[margin]] by means of a [[margin adjustment]].
+'''Careful, though''': all this, however, is quickly undermined — as those at Credit Suisse in charge of risking The Client Who Shall Not Be Named would tell you, if any of them were left — if there is any notice period before a margin adjustment takes effect, or if there is a margin lock-up.
-The reality about just when a customer may ask for its excess margin back — whenever it likes, in the normal run of things — can startle a complacent risk officer, but what a startled risk officer can then do if it doesn’t terribly like the idea of giving the margin excess back — reclassifying it as ''required'' [[margin]] by means of a [[margin adjustment]] — tends to make the risk officer feel a bit better, even though she might not quite believe it.
-As long as you have a margin excess, you shouldn’t need to make a [[margin call]] — a [[margin adjustment]] will do.
 {{sa}}