82,891
edits
Template:M summ 1995 CSA Independent Amount: Difference between revisions
Template:M summ 1995 CSA Independent Amount (view source)
Revision as of 13:45, 4 June 2020
, 4 June 2020→Is “{{csaprov|Independent Amount}}” different from “initial margin”?
Amwelladmin (talk | contribs) No edit summary |
Amwelladmin (talk | contribs) |
||
| Line 3: | Line 3: | ||
On the face of it, it looks that way, doesn’t it. But no. | On the face of it, it looks that way, doesn’t it. But no. | ||
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 | 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 by reference to the liquidity and volatility of the specific {{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 just send their swap dealer a wodge of money | 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 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> | ||
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. | 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. | ||