Regulatory initial margin

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2018 IM CSD Anatomy™

2018 ISDA Credit Support Deed for Initial Margin

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Regulatory margin for initial margin (known to ISDA ninjas as an “Independent Amount”, as opposed to regulatory variation margin. Introduced later and with a lot more complexity, because — to properly address credit risks between the parties and not aggravate them — regulatory initial margin can’t be transferred outright. That means, no title transfer of securities, and no cash.

You what?

It is true, my little striplings. Securities only, and only by pledge.[1], but this is somewhat frowned upon, subject to regulatory limits and so on.

In the old world, Independent Amounts were transferred outright to the Transferee, by title transfer.[2] This created a conceptual issue for regulators, who were trying to minimise credit exposure between the parties: a title transfer of collateral to cover a potential Exposure that doesn’t yet — and might never — exist creates a negative exposure, because the holder of the Independent Amount would owe it to the Transferor, and the Transferor would be an unsecured creditor for its return. Hence, regulatory initial margin cannot be cash, and must be pledged and not title transferred.

This means, for most cases, third-party custodians, tri-party collateral arrangements, account control agreements, security deeds and all that kind of nonsense. Corporate trust and agency service providers sang hosannas to the regulators. Legal eagles licked lips. Everyone else did the side-eye.

See also


  1. Under certain thresholds, you can post non-regulatory compliant initial margin. For more information see Credit Support Amount (VM/IA).
  2. Under an English law 1995 CSA, at any rate. But the effect was the same where rehypothecation was allowed under a 1994 NY CSA too.