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Regulatory initial margin: Difference between revisions
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{{ | {{a|imcsa|[[2018 ISDA Credit Support Deed for Initial Margin]]}}[[Regulatory margin]] for [[initial margin]] (known to [[ISDA ninja]]s as an “{{csaprov|Independent Amount}}”, as opposed to [[regulatory variation margin]]. Introduced later and with a lot more complexity, because — to properly address [[credit risk]]s between the parties and not aggravate them — [[regulatory initial margin]] can’t be [[Title-transfer collateral arrangement|transferred outright]]. That means, no [[title transfer]] of [[securities]], and no [[cash]]. | ||
===You what?=== | ===You what?=== | ||
It is true, my little striplings. [[Securities]] only, and only by [[pledge]].<ref>Under certain thresholds, you can post non-regulatory compliant [[initial margin]] | It is true, my little striplings. [[Securities]] only, and only by [[pledge]].<ref>Under certain thresholds, you can post non-regulatory compliant [[initial margin]]. For more information see {{csaprov|Credit Support Amount (VM/IA)}}.</ref>, but this is somewhat frowned upon, subject to regulatory limits and so on. | ||
In the old world, {{csaprov|Independent Amount}}s were transferred outright to the Transferee, by title transfer.<ref>Under an [[English law]] {{csa}}, at any rate. But the effect was the same where [[rehypothecation]] was allowed under a {{1994csa}} too.</ref> 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 {{vmcsaprov|Exposure}} that doesn’t yet — and might never — exist creates a ''negative'' exposure, because the holder of the {{csaprov|Independent Amount}} would ''owe'' it to the {{csaprov|Transferor}}, and the Transferor would be an unsecured creditor for its return. Hence, [[regulatory initial margin]] cannot be [[cash]], and must be [[Pledge|pledged]] and not [[title transfer]]red. | In the old world, {{csaprov|Independent Amount}}s were transferred outright to the Transferee, by title transfer.<ref>Under an [[English law]] {{csa}}, at any rate. But the effect was the same where [[rehypothecation]] was allowed under a {{1994csa}} too.</ref> 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 {{vmcsaprov|Exposure}} that doesn’t yet — and might never — exist creates a ''negative'' exposure, because the holder of the {{csaprov|Independent Amount}} would ''owe'' it to the {{csaprov|Transferor}}, and the Transferor would be an unsecured creditor for its return. Hence, [[regulatory initial margin]] cannot be [[cash]], and must be [[Pledge|pledged]] and not [[title transfer]]red. | ||
This means, for most cases, third-party custodians, | This means, for most cases, third-party custodians, [[Tri-party collateral arrangement|tri-party collateral arrangement]]s, [[account control agreement]]s, [[security deed]]s and all that kind of nonsense. Corporate trust and agency service providers sang hosannas to the regulators. [[Legal eagle]]s licked lips. Everyone else did the side-eye. | ||
{{sa}} | {{sa}} | ||
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*[[Variation margin]] | *[[Variation margin]] | ||
*[[Regulatory variation margin]] | *[[Regulatory variation margin]] | ||
{{ref}} | |||