Regulatory initial margin
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.
In the old world, Independent Amounts were transferred outright to the Transferee, by title transfer. 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.