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Template:Csa Interest Payment summ: Difference between revisions
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=====Interest Amounts under the 1995 CSA===== | =====Interest Amounts under the 1995 CSA===== | ||
It really ought to be quite simple, and in the {{csa}} it is: if a {{ | It really ought to be quite simple, and in the {{csa}} it is: if a {{{{{1}}}|Transferor}} has posted [[cash]] — probably less likely back in the day, but in the world of [[regulatory margin]], ''de rigueur'' nowadays — then you get [[interest]] on it — as long as paying interest wouldn’t, in itself, trigger a call for a further {{{{{1}}}|Delivery Amount}} by the {{{{{1}}}|Transferor}} — thus precipitating a (short) game of operational ping-pong between the two parties’ back office teams. | ||
How would that happen? [[All other things being equal|All other things staying equal]], it couldn’t: if the {{ | How would that happen? [[All other things being equal|All other things staying equal]], it couldn’t: if the {{{{{1}}}|Transferee}}’s {{{{{1}}}|Exposure}} and the {{{{{1}}}|Value}} of the {{{{{1}}}|Transferor}}’s {{{{{1}}}|Credit Support Balance}} stayed the same as it was when [[variation margin]] was last called, the arrival of interest on any part of that {{{{{1}}}|Credit Support Balance}} increases its value and, since it was calibrated to equal an exposure exactly, ought to be spirited back to the {{{{{1}}}|Transferor}}: the {{{{{1}}}|Transferee}} otherwise would become indebted for the value of that interest to the {{{{{1}}}|Transferor}}, which for variation margin is not the idea. | ||
But as we know, {{ | But as we know, {{{{{1}}}|Exposure}}s ''don’t'' just quietly sit there. If they did, there wouldn’t be any need for initial margin, and collecting even [[variation margin]] would be less fraught. So if the {{{{{1}}}|Transferee}}’s {{{{{1}}}|Exposure}} has increased, the arrival of that interest might serve to fill a hole in the existing coverage, in which case, why pay it away only to ask for it back again? | ||
=====Interest Amounts under the 2016 VM CSA===== | =====Interest Amounts under the 2016 VM CSA===== | ||
But in the {{vmcsa}} things get a little more complex. There follows an excruciating torture session for innocent and well-loved members of | But in the {{vmcsa}} things get a little more complex. There follows an excruciating torture session for innocent and well-loved members of Her Majesty’s vocabulary, and all to get across a simple point. In the {{premium}} nutshell JC has tried to simplify the drafting but I am a bit jet-lagged and it is testing even my patience. But know this: {{{{{1}}}|Interest Payment}} is a fiddly, time-and resource-consuming pain which will inevitably lead to error, confusion and name-calling. {{{{{1}}}|Interest Adjustment}} — just adding accrued interest to your {{{{{1}}}|Credit Support Balance}} — is far simpler and more elegant: none of this Kafkaesque complexity for netting and offsetting individual payments. It all comes out in the wash. | ||
====When you might want Interest Payment==== | =====When you might want Interest Payment===== | ||
Now there ''is'' a “use-case” for the Interest Payment method — it’s pretty niche, though — which we will talk about over at the premium JC. | Now there ''is'' a “use-case” for the Interest Payment method — it’s pretty niche, though — which we will talk about over at the premium JC. | ||