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Template:Csa IA Threshold MTA summ: Difference between revisions
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Okay. Now in a CSA, beyond your basic Exposure and how much {{{{{1}}}|Credit Support}} you have already posted, there are three levers determining what you will have to post, or may call, in the future. These are: | Okay. Now in a CSA, beyond your basic Exposure and how much {{{{{1}}}|Credit Support}} you have already posted, there are three — well, if you count {{{{{1}}}|Rounding}}, three-and-a-half — levers determining what you will have to post, or may call, in the future. These are: | ||
{{L1}}'''{{{{{1}}}|Independent Amount}}''' or “'''{{{{{1}}}|IA}}'''”: How much do you have to leave with the other guy, over and above your mark-to-market {{{{{1}}}|Exposure}}, to make things nice. There isn’t an {{{{{1}}}|Independent Amount}} in a [[Modern CSA|modern variation margin CSA]] for reasons canvassed in the {{premium}}.<li> | {{L1}}'''{{{{{1}}}|Independent Amount}}''' or “'''{{{{{1}}}|IA}}'''”: How much do you have to leave with the other guy, over and above your mark-to-market {{{{{1}}}|Exposure}}, to make things nice. There isn’t an {{{{{1}}}|Independent Amount}} in a [[Modern CSA|modern variation margin CSA]] for reasons canvassed in the {{premium}}.<li> | ||
'''{{{{{1}}}|Threshold}}''': Is there any lower limit of {{{{{1}}}|Exposure}} that you might have to wait for before being able to call, or be obliged to post, variation margin. There isn’t a {{{{{1}}}|Threshold}} in a [[Modern CSA|modern variation margin CSA]], either, for reasons also canvassed in the {{premium}}. But they are somewhat related.<li> | '''{{{{{1}}}|Threshold}}''': Is there any lower limit of {{{{{1}}}|Exposure}} that you might have to wait for before being able to call, or be obliged to post, variation margin. There isn’t a {{{{{1}}}|Threshold}} in a [[Modern CSA|modern variation margin CSA]], either, for reasons also canvassed in the {{premium}}. But they are somewhat related.<li> | ||
'''{{{{{1}}}|Minimum Transfer Amount}}''' or “'''{{{{{1}}}|MTA}}'''”: Assuming you are over your {{{{{1}}}|Threshold}}, is there a “smallest integral amount” of incremental {{{{{1}}}|Exposure}} that must arisen before a posting obligation arises and anyone has to go to the trouble of paying out? Somewhat related to this is the question of {{{{{1}}}|Rounding}} where the {{{{{1}}}|Transfer Amount}} gets rounded up or down to a whole number, so no one has to be rifling down the back of the sofa for shillings and pence. Oddly, this appears only in the Elections, and not in the {{{{{1}}}|Credit Support Obligations}} section itself. In any case, these days rounding is typically to the nearest whole unit of currency — dollar, euro, pound; back in the day it might have been a hundred or a thousand — but not in any case the sort of thing one would expect to send a counterparty over the edge, {{plainlink|https://en.wikipedia.org/wiki/Mr_Creosote|Mr. Creosote}} references notwithstanding. </ol> | '''{{{{{1}}}|Minimum Transfer Amount}}''' or “'''{{{{{1}}}|MTA}}'''”: Assuming you are over your {{{{{1}}}|Threshold}}, is there a “smallest integral amount” of incremental {{{{{1}}}|Exposure}} that must arisen before a posting obligation arises and anyone has to go to the trouble of paying out? <li> | ||
'''{{{{{1}}}|Rounding}}''': Somewhat related to this is the question of {{{{{1}}}|Rounding}} where the {{{{{1}}}|Transfer Amount}} gets rounded up or down to a whole number, so no one has to be rifling down the back of the sofa for shillings and pence. Oddly, this appears only in the Elections, and not in the {{{{{1}}}|Credit Support Obligations}} section itself. In any case, these days rounding is typically to the nearest whole unit of currency — dollar, euro, pound; back in the day it might have been a hundred or a thousand — but not in any case the sort of thing one would expect to send a counterparty over the edge, {{plainlink|https://en.wikipedia.org/wiki/Mr_Creosote|Mr. Creosote}} references notwithstanding. </ol> | |||
These three levers do different things: {{{{{1}}}|Independent Amount}} is what is now colloquially referred to as [[initial margin]]: it is a buffer that just sits there for a rainy day. {{{{{1}}}|Threshold}} allows you to set a point where okay yes my credit people are now officially freaking out and you need to make them less freaky fast. So the {{{{{1}}}|Threshold}} will typically be a big number. You cross it once, and the CSA starts up. If you drop below it, the CSA stops again. If one or other party wishes to ''never'' post {{{{{1}}}|Credit Support}} (did happen, not really nowadays with regulatory VM, but there is the odd [[Non-financial counterparty|NFC]] in this bucket) you would set your {{{{{1}}}|Threshold}} at “Infinity”. The {{{{{1}}}|Minimum Transfer Amount}} is usually a small, round number (say USD1m, or USD5m) that reflects the fact that small movements in {{{{{1}}}|Exposure}} are not really worth getting your collateral ops steampunk machine fired up for. | These three levers do different things: {{{{{1}}}|Independent Amount}} is what is now colloquially referred to as [[initial margin]]: it is a buffer that just sits there for a rainy day. {{{{{1}}}|Threshold}} allows you to set a point where okay yes my credit people are now officially freaking out and you need to make them less freaky fast. So the {{{{{1}}}|Threshold}} will typically be a big number. You cross it once, and the CSA starts up. If you drop below it, the CSA stops again. If one or other party wishes to ''never'' post {{{{{1}}}|Credit Support}} (did happen, not really nowadays with regulatory VM, but there is the odd [[Non-financial counterparty|NFC]] in this bucket) you would set your {{{{{1}}}|Threshold}} at “Infinity”. The {{{{{1}}}|Minimum Transfer Amount}} is usually a small, round number (say USD1m, or USD5m) that reflects the fact that small movements in {{{{{1}}}|Exposure}} are not really worth getting your collateral ops steampunk machine fired up for. | ||
====Isn’t Threshold something to do with Cross Default?==== | ====Isn’t Threshold something to do with Cross Default?==== | ||