Template:M summ 2016 NY VM CSA Obligations

Should you want your variation margin CSA to act as security for other obligations your counterparty may owe you, outside the terms of the ISDA, then here is where you make that quixotic quest.

Quixotic why? Because variation margin is calculated — literally calculated, that is, not just forensically calculated —to have a value exactly equal to your counterparty’s net mark-to-market liability to you under the contract, so in the ordinary course, there will be more or less none of it left by the time it comes to recovering other debts owed by the same bankrupted counterparty.

Yes, yes, yes: we know that the market may have moved and there may be some residual value, sure. It might be worth something on that far-off day when that one-in-a-thousand-client event happens and this one blows up. But how much time will you have wasted in negotiation with the other nine-hundred and ninety nine clients in the mean time, for the sake of a shot at a few thousand extra bucks?

So we expect it is unlikely people with much by way of common sense seek to add additional Obligations to their CSAs, but we are sure it is not impossible that some do. Can we imagine, for example, unwilling negotiators being prodded into it by unsmiling credit officers, poking them in the back with a sharpened stick, deaf to the lack of practical value such a manoeuvre offers? Yes. Yes we can.