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Template:M summ 1995 CSA Independent Amount: Difference between revisions
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, 4 June 2020→Is the {{csaprov|Independent Amount}} different from initial margin?
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===Is the {{csaprov|Independent Amount}} different from [[initial margin]]?=== | ===Is the {{csaprov|Independent Amount}} different from [[initial margin]]?=== | ||
On the face of it, it looks that way, doesn’t it. | On the face of it, it looks that way, doesn’t it. But no. | ||
But the {{csa}} doesn’t have a concept of [[initial margin]], and no-one in their right mind would | If you look at it cold, the {{csaprov|Independent Amount}} as written in the {{csa}} looks like a fixed currency amount that is paid at the beginning of a relationship, irrespective of how many {{isdaprov|Transactions}} you may have on — even if you have ''none'' on. As conventionally understood, “[[initial margin]]” is, by contrast, {{isdaprov|Transaction}}-specific, being calculated as it is, specifically by reference to the liquidity and volatility of the {{isdaprov|Transaction}} to which it relates. | ||
But the {{csa}} doesn’t have a concept of [[initial margin]], and no-one in their right mind would jhust send their swap dealer a wodge of money, much less a truck load of assets, just to commemorate the signing of an {{isdama}}, exciting though that event may be. {{icds}} of 1994 and 1995 lived in a kinder, more naïve time — one more impressionably swooned by the conclusion of a master agreement than our own, perhaps — or may just have been blitzed when they came up with the idea. | |||
What the market has done is the bend the fantastical verbal engineering of the {{csa}} into something that works in practice as Transaction specific initial margin. So the {{isdaprov|Independent Amount}} will be usually defined as “an amount agreed between the parties in relation to each Transaction, 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, 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 adjusted on the fly. | What the market has done is the bend the fantastical verbal engineering of the {{csa}} into something that works in practice as Transaction specific initial margin. So the {{isdaprov|Independent Amount}} will be usually defined as “an amount agreed between the parties in relation to each Transaction, 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, 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 adjusted on the fly. | ||