83,584
edits
Amwelladmin (talk | contribs) No edit summary |
Amwelladmin (talk | contribs) No edit summary |
||
(One intermediate revision by the same user not shown) | |||
Line 1: | Line 1: | ||
{{a|g|{{Types of margin}}}}Also known, to ISDAphiles, [[ISDA ninja|ninjas]] and the men and women of {{icds}} as “{{csaprov|Independent Amount}}” and to aggressive predictive text engines as “''I’m''”, | {{a|g|{{Types of margin}}}}Also known, to ISDAphiles, [[ISDA ninja|ninjas]] and the men and women of {{icds}} as “{{csaprov|Independent Amount}}” and to aggressive predictive text engines as “''I’m''”, [[initial margin]] is the amount of [[collateral]] a [[broker]] requires from its [[counterparty]] up front, notwithstanding any change in the [[mark-to-market]] value of the transaction. So [[initial margin]] is a precaution against potential ''future'' [[indebtedness]], should it happen, not ''current'' [[indebtedness]]. Current indebtedness is covered by [[variation margin]]. | ||
Therefore, where surrendered in [[cash]] directly to the [[lender]]/counterparty — i.e., not by way of [[client money]] or anything like that<ref>Though there it creates [[indebtedness]] from the [[bank]] that holds the [[cash]], of course.</ref> — [[initial margin]] creates ''negative'' [[indebtedness]]. In other words, the ''holder'' of [[initial margin]] is indebted to the ''provider'' of it. A counter-intuitive result to be sure; and part of the reason that, generally, [[regulatory initial margin]] is required to be posted in the form of securities or other custodial assets, and to a third party custodian, to whom (in theory) neither party has any credit exposure. | |||
===[[Stock lending]]=== | |||
Another example of this counter-intuitive effect is in the [[stock loan]] market, where the [[haircut]] on the collateral leg is effectively [[initial margin]], and since the {{gmslaprov|Borrower}} title-transfers (say) 105% of the value of the {{gmsla|Borrowed Securities}} to the {{gmslaprov|Lender}}, in fact the {{gmslaprov|Lender}} is indebted to the {{gmslaprov|Borrower}} and not the other way around. Hence the [[Pledge GMSLA]] of 2018, to solve this exact problem for bank counterparties’ LRD calculations. | Another example of this counter-intuitive effect is in the [[stock loan]] market, where the [[haircut]] on the collateral leg is effectively [[initial margin]], and since the {{gmslaprov|Borrower}} title-transfers (say) 105% of the value of the {{gmsla|Borrowed Securities}} to the {{gmslaprov|Lender}}, in fact the {{gmslaprov|Lender}} is indebted to the {{gmslaprov|Borrower}} and not the other way around. Hence the [[Pledge GMSLA]] of 2018, to solve this exact problem for bank counterparties’ LRD calculations. | ||
===Compare and contrast=== | |||
Compare, by way of contrast, [[variation margin]]. | |||
{{sa}} | {{sa}} | ||
*[[Margin call]] | *[[Margin call]] | ||
Line 12: | Line 13: | ||
*[[Pledge GMSLA]] | *[[Pledge GMSLA]] | ||
*{{tag|EMIR}}, and in particular {{emirprov|uncleared derivatives margin}} | *{{tag|EMIR}}, and in particular {{emirprov|uncleared derivatives margin}} | ||
{{Ref}} |