Template:M gen 1995 CSA Independent Amount

If you look at it cold, this looks like a fixed currency amount that is paid at the beginning of a relationship, irrespective of how many Transactions you may have on. But it will be often defined as “an amount agreed between the parties or as otherwise advised by Party X”, which rather kicks the issue in to touch. In practice, it’s likely to be articulated as a multiplier on notional, and will be payable at the start of each Transaction, and may be adjusted on the fly.

For example, a dealer who sets IA by reference to the perceived volatility of the 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 her margin tables — and put in a desperate call to Legal — the day UK decided Brexit means Brexit, for example.

Particularly where underlying trades and markets are volatile, expect to see much customisation.

• The Independent Amount might be calculated by reference to a given multiplier for a given asset class: it is not uncommon to see tiering in FX transactions, for example, where Transactions on currencies in the highest tier might have a lower multiplier that those on the higher tiers.
• Especially where one counterparty is providing access to markets for the other party (so called synthetic prime brokerage) there may be a provision that the calculation agent can adjust tiers, multipliers, and the assets which are eligible for each tier in its discretion, and with effect to existing as well as new transactions. This can have the effect of retroactively adjusting Independent Amounts, in which case the difference can be called under the ordinary Transfer provisions.