Template:Credit support amount capsule: Difference between revisions

Template:Credit support amount capsule (view source)

Revision as of 05:43, 28 December 2019

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→‎No equivalent in the {{2016csa}}

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 ====No equivalent in the {{2016csa}}====
-Careful observers will have noticed there isn't such a concept in the {{2016csa}}. This is because the {{csaprov|Credit Support Amount}} is no more than a given party’s {{csaprov|Exposure}} — as already defined in the {{tag|CSA}} — together with any pertinent {{csaprov|Independent Amount}}s and similar amounts. Of course, under the {{2016csa}} (being concerned only with [[variation margin]]) there ''are'' no {{vmcsaprov|Independent Amount}}s.<ref>Well, alright, ''should be'' no {{vmcsaprov|Independent Amount}}s. {{vmcsaprov|Independent Amount}}s traditionally are there to protect counterparties against ''potential'' swings in {{vmcsaprov|Exposure}} between margin calls. They are a buffer against ''the risk'' of market moves. But a [[title transfer]] of collateral to cover an {{vmcsaprov|Exposure}} that doesn’t yet, and might never, exist creates an actual exposure the other way, as the holder of the {{vmcsaprov|Independent Amount}} is now actually indebted to the {{vmcsaprov|Transferor}} for its return. That said, there is a custom-built addition in Paragraph {{vmcsaprov|11}} that lets you build them back in if you want to. And who, in their right chicken-lickeny mind, wouldn’t want to?</ref> So it vanishes, in a puff of logic and existential redundancy.
+Careful observers will have noticed there isn't such a concept in the {{2016csa}}. This is because the {{csaprov|Credit Support Amount}} a party may require was no more than its {{csaprov|Exposure}} to the opther party — as already defined in the {{tag|CSA}} — plus any pertinent {{csaprov|Independent Amount}}s due from the other party and less any agreed {{csaprov|Threshold}}. Life is much simpler in the world of regulatory variation margin envisaged by the {{2016csa}}, concerned as it is only with [[variation margin]]. That is, there ''are'' no {{vmcsaprov|Independent Amount}}s.<ref>Well, alright, ''should be'' no {{vmcsaprov|Independent Amount}}s. {{vmcsaprov|Independent Amount}}s traditionally are there to protect counterparties against ''potential'' swings in {{vmcsaprov|Exposure}} between margin calls. They are a buffer against ''the risk'' of market moves. But a [[title transfer]] of collateral to cover an {{vmcsaprov|Exposure}} that doesn’t yet, and might never, exist creates an actual exposure the other way, as the holder of the {{vmcsaprov|Independent Amount}} is now actually indebted to the {{vmcsaprov|Transferor}} for its return. That said, there is a custom-built addition in Paragraph {{vmcsaprov|11}} that lets you build them back in if you want to. And who, in their right chicken-lickeny mind, wouldn’t want to?</ref>
 And what about the {{vmcsaprov|Threshold}}? Well, there shouldn't be one of those either: The thrust of the margin reforms in the different jurisdictions was to require counterparties to collateralise their total mark-to-market exposure, not just most of it, so in a rush of uncharacteristic blood to the head, ISDA did away with the concept altogether. There is usually ''some'' flex in the regulations, and don’t be surprised to see your more tempestuous counterparties hotly insisting on a {{vmcsaprov|Threshold}}, even just a nominal one. <br>
+So the {{csaprov|Credit Support Amount}} vanishes, in a puff of logic and existential redundancy. <br>