Template:Deliveryandreturnamounts: Difference between revisions
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===Calculating {{csaprov|Delivery Amount}}s and {{csaprov|Return Amount}}s=== | ===Calculating {{csaprov|Delivery Amount}}s and {{csaprov|Return Amount}}s=== | ||
====Delivery | ===={{csaprov|Delivery Amount}}s==== | ||
# '''First''': work out your '''{{csaprov|Credit Support Amount}}'''. This is: <br> | # '''First''': work out your '''{{csaprov|Credit Support Amount}}'''. This is: <br> | ||
:''{{csaprov|Transferee}}’s {{csaprov|Exposure}} + Net {{csaprov|Independent Amount}}s (IF ANY)<ref>In the {{2016csa}} there really shouldn't be {{tag|IA}} as it kind of defeats the regulatory goal of marking actual exposures to market, but there may be, since ISDA caved and retrofitted the CSA with a an Independent Amount section</ref>'' <br> | :''{{csaprov|Transferee}}’s {{csaprov|Exposure}} + Net {{csaprov|Independent Amount}}s (IF ANY)<ref>In the {{2016csa}} there really shouldn't be {{tag|IA}} as it kind of defeats the regulatory goal of marking actual exposures to market, but there may be, since ISDA caved and retrofitted the CSA with a an {{csaprov|Independent Amount}} section</ref>'' <br> | ||
# '''Second''': calculate the {{csaprov|Value}} of the {{csaprov|Transferor}}’s {{csaprov|Credit Support Balance}}. This is basically the prevailing value of the {{csaprov|Eligible Credit Support}} (and income on it) that the {{csaprov|Transferor}} has ponied up at that time. <br> | # '''Second''': calculate the {{csaprov|Value}} of the {{csaprov|Transferor}}’s {{csaprov|Credit Support Balance}}. This is basically the prevailing value of the {{csaprov|Eligible Credit Support}} (and income on it) that the {{csaprov|Transferor}} has ponied up at that time. <br> | ||
# '''Third''': Deduct the {{csaprov|Credit Support Balance}} from the {{csaprov|Credit Support Amount}}. | # '''Third''': Deduct the {{csaprov|Credit Support Balance}} from the {{csaprov|Credit Support Amount}}. | ||
# '''Fourth''': If the difference from the sum you did in (3): | # '''Fourth''': If the difference from the sum you did in (3): | ||
##is ''less'' than zero, KEEP QUIET. If you are lucky, the other guy won’t ask you for a {{csaprov|Return Amount}}. | ##is ''less'' than zero, KEEP QUIET. If you are lucky, the other guy won’t ask ''you'' for a {{csaprov|Return Amount}}. | ||
##is ''more'' than zero but ''less'' than the {{csaprov|Minimum Transfer Amount}}, also KEEP QUIET. No {{csaprov|Delivery Amount}} for you today. | ##is ''more'' than zero but ''less'' than the {{csaprov|Minimum Transfer Amount}}, also KEEP QUIET. No {{csaprov|Delivery Amount}} for you today, because you haven’t exceeded the {{csaprov|Minimum Transfer Amount}}, so you are not entitled to one. | ||
##is ''more'' than the {{csaprov|Minimum Transfer Amount}} you can demand the whole amount (I.e., not just the bit over the {{csaprov|MTA}}). | ##is ''more'' than the {{csaprov|Minimum Transfer Amount}} you can demand the ''whole'' amount (I.e., not just the bit over the {{csaprov|MTA}}). | ||
===={{csaprov|Return Amount}}==== | ===={{csaprov|Return Amount}}==== | ||
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====Picturesque speech==== | ====Picturesque speech==== | ||
''Bonus learning for free: In a subtraction, the sum being subtracted is the [[subtrahend]] and the sum it is being subtracted from is the [[minuend]].'' <br> | ''Bonus learning for free: In a subtraction, the sum being subtracted is the “[[subtrahend]]” and the sum it is being subtracted from is the “[[minuend]]”.'' <br> | ||
Revision as of 17:44, 16 December 2019
Calculating Delivery Amounts and Return Amounts
Delivery Amounts
- First: work out your Credit Support Amount. This is:
- Transferee’s Exposure + Net Independent Amounts (IF ANY)[1]
- Second: calculate the Value of the Transferor’s Credit Support Balance. This is basically the prevailing value of the Eligible Credit Support (and income on it) that the Transferor has ponied up at that time.
- Third: Deduct the Credit Support Balance from the Credit Support Amount.
- Fourth: If the difference from the sum you did in (3):
- is less than zero, KEEP QUIET. If you are lucky, the other guy won’t ask you for a Return Amount.
- is more than zero but less than the Minimum Transfer Amount, also KEEP QUIET. No Delivery Amount for you today, because you haven’t exceeded the Minimum Transfer Amount, so you are not entitled to one.
- is more than the Minimum Transfer Amount you can demand the whole amount (I.e., not just the bit over the MTA).
Return Amount
Basically the converse of a Delivery Amount. In this case you deduct the Credit Support Amount from the Credit Support Balance.
What about in-flight Credit Support deliveries?
So yesterday you met a margin call by delivering a bond the standard settlement cycle for which means it won’t arrive till the day after tomorrow. How is this “in-flight collateral” treated for the purpose of today’s margin call? It’s treated as having already been made. However, if your counterparty fails in the meantime (before the bond has settled, and assuming ultimately it never does), it would count as an Unpaid Amount which would factor into your close-out calculation.
At first blush this seems an odd result, but the risk is a time value risk associated with the collateral, not a counterparty risk per se. You accepted it when you agreed to Eligible Credit Support with a long a settlement cycle in the first place. If you don't want that time-value risk, don’t agree to collateral with a long settlement cycle.
Picturesque speech
Bonus learning for free: In a subtraction, the sum being subtracted is the “subtrahend” and the sum it is being subtracted from is the “minuend”.
- ↑ In the 2016 VM CSA there really shouldn't be IA as it kind of defeats the regulatory goal of marking actual exposures to market, but there may be, since ISDA caved and retrofitted the CSA with a an Independent Amount section