Template:Credit support amount capsule: Difference between revisions

Life is much simpler in the world of regulatory [[variation margin]] for which the {{2016csa}} is designed. Its only concern is  [[variation margin]]. That is, there ''are'' no {{csaprov|Independent Amount}}s.<ref>Well, alright, ''should be'' no {{csaprov|Independent Amount}}s.</ref> In the old {{csa}},{{csaprov|Independent Amount}}s were there to protect counterparties against ''potential'' swings in {{vmcsaprov|Exposure}} that might happen before the next margin call: that is, they are a buffer against ''the risk'' of market moves.  

But in the old world, {{csaprov|Independent Amount}}s were transferred outright to the Transferee, by title transfer.<ref>Under Engliush law CSAs, 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 an {{vmcsaprov|Exposure}} that doesn’t yet — and might never — exist creates a ''negative'' exposure, because the holder of an {{csaprov|Independent Amount}} would be indebted to the {{csaprov|Transferor}} for its return.<ref>Hence, [[regulatory initial margin]] cannot be [[cash]], and must be [[Pledge|pledged]] and not [[title transfer]]red.