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Template:Independent amount vs initial margin: Difference between revisions
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Amwelladmin (talk | contribs) (Created page with "===Is “{{{{{1}}}prov|Independent Amount}}” different from “initial margin”?=== On the face of it, it looks that way, doesn’t it. But no. If you look at it cold...") |
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But the {{{{{1}}}}} doesn’t have a concept of “[[initial margin]]”, and no-one in their right mind would send their swap dealer a wodge of money just to commemorate the signing of an {{isdama}}, exciting though that event may be. Perhaps {{icds}} of 1994 and 1995 lived in a kinder, more naïve time — one more impressionably swooned by the conclusion of a [[negotiation]] than our own — or maybe they were just blitzed when they came up with the idea.<ref>This isn’t an entirely outlandish speculation: how else can you rationalise their formulation of {{isdaprov|Indemnifiable Taxes}}, for example? It was the “naughty nineties”, after all.</ref> | But the {{{{{1}}}}} doesn’t have a concept of “[[initial margin]]”, and no-one in their right mind would send their swap dealer a wodge of money just to commemorate the signing of an {{isdama}}, exciting though that event may be. Perhaps {{icds}} of 1994 and 1995 lived in a kinder, more naïve time — one more impressionably swooned by the conclusion of a [[negotiation]] than our own — or maybe they were just blitzed when they came up with the idea.<ref>This isn’t an entirely outlandish speculation: how else can you rationalise their formulation of {{isdaprov|Indemnifiable Taxes}}, for example? It was the “naughty nineties”, after all.</ref> | ||
In any case, what the market has done since the [[Children of the | In any case, what the market has done since the [[Children of the Woods]] first produced that nutty {{{{{1}}}prov|Independent Amount}} concept is to bend the squad’s fantastical verbal engineering so it ''works like'' {{isdaprov|Transaction}}-specific [[initial margin]]. So, the {{{{{1}}}prov|Independent Amount}} will be usually defined as “an amount agreed between the parties in relation to each {{isdaprov|Transaction}}, or as otherwise advised by Party A”,<ref>Being the [[dealer]], of course.</ref> which rather kicks the issue in to touch. In practice, it’s likely to be articulated as a multiplier on notional, will be required of the client by the [[swap dealer]] and not the other way around, will be payable at the start of each {{isdaprov|Transaction}}, and may be adjustable on the fly. | ||
For example, a [[dealer]] who sets [[IA]] by reference to the perceived volatility of the {{isdaprov|Transaction}} might reserve the right to increase [[IA]] should that volatility unexpectedly change. You can be sure more than one risk officer embarked on an undignified scramble for {{sex|her}} margin tables — and put in a desperate call to [[Legal]] — the day UK decided [[Brexit means Brexit|Brexit meant what it said]] and [[sterling]] [[gapped]] down 8%. | For example, a [[dealer]] who sets [[IA]] by reference to the perceived volatility of the {{isdaprov|Transaction}} might reserve the right to increase [[IA]] should that volatility unexpectedly change. You can be sure more than one risk officer embarked on an undignified scramble for {{sex|her}} margin tables — and put in a desperate call to [[Legal]] — the day UK decided [[Brexit means Brexit|Brexit meant what it said]] and [[sterling]] [[gapped]] down 8%. | ||