Template:M summ 1995 CSA Independent Amount: Difference between revisions

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 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 truckload of assets, 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 master agreement than our own — or they may just have been 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}}?</ref>
+But the {{csa}} doesn’t have a concept of [[initial margin]], and no-one in their right mind would just send their swap dealer a wodge of money, much less a truckload of assets, 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 master agreement than our own — or they may just have been 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>
-What the market has done is the bend the fantastical verbal engineering of the {{csa}} into something that works in practice as {{isdaprov|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 squad’s fantastical verbal engineering into something that ''works like'' {{isdaprov|Transaction}}-specific [[initial margin]]. So the {{isdaprov|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]]<ref>and [[sterling]] [[gapped]] down 8%</ref>, for example.
+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%.
-Particularly where underlying trades and markets are volatile, expect to see much customisation.
+Particularly where underlying trades and markets are volatile, expect to see much customisation of the {{isdaprov|Independent Amount}}.
-*The {{csaprov|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 {{isdaprov|Transaction}}s on currencies in the highest tier might have a lower multiplier that those on the higher tiers.
+*It 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 {{isdaprov|Transaction}}s on currencies in the highest tier might have a bigger multiplier that those on lower 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 {{ca}} 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 {{csaprov|Independent Amount}}s, in which case the difference can be called under the ordinary {{csaprov|Transfer}} provisions.
+*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 {{ca}} 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 {{csaprov|Independent Amount}}s, in which case the difference can be called under the {{csa}}’s ordinary {{csaprov|Transfer}} provisions.