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Template:M summ 2018 CSD 13(h): Difference between revisions
→The basic problem part II
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===The basic problem part II=== | ===The basic problem part II=== | ||
Now remember: unlike [[variation margin]], where only the [[in-the-money]] counterparty holds it, there are necessarily ''two'' | Now remember: unlike [[variation margin]], where only the [[in-the-money]] counterparty holds it, there are necessarily ''two'' buckets of [[Regulatory IM]] at all times: the stuff ''you'' posted as security for [[mark-to-market]] moves against ''you'', and the stuff ''the other guy'' posted as [[mark-to-market]] movements against ''her''. | ||
Now: if a catastrophic event affects one party that | Now: if a catastrophic event affects one party that precipitates a close-out, ''you stop exchanging [[variation margin]]''. There’s no point: one side ''can’t'' pay it, [[QED|Q.E.D.]]; the other side would be ''mad'' to pay it (and thanks to Section {{isdaprov|2(a)(iii)}}, doesn’t have to in any case). | ||
At the last point that the parties exchanged [[VM]], the net [[mark-to-market]] of the whole portfolio was (more or less) nil. After that point, until all {{isdaprov|Transaction}}s are terminated, the MTM value of the portfolio will swing around. It could go ''either'' way. ''It does not follow that the {{isdaprov|Unaffected Party}} will be owed any money''. By the time it has determined the {{isdaprov|Early Termination Amount}}, it may ''owe'' the defaulting party money. Until then it doesn’t need its own [[initial margin]] back, it ''should not'' get its initial margin back, and nor should it get to take the {{isdaprov|Affected Party}}’s [[initial margin]]. | |||
This is just my opinion. | |||
===What were they ''trying'' to achieve? go figure.=== | ===What were they ''trying'' to achieve? go figure.=== | ||