82,903
edits
Template:M summ 2018 CSD 13(h): Difference between revisions
no edit summary
Amwelladmin (talk | contribs) No edit summary |
Amwelladmin (talk | contribs) No edit summary |
||
| Line 2: | Line 2: | ||
With this provision it looks like the ’squad got to the point of maximum disarray, with all rocks upturned and slaters, bugs and cockroaches scuttling everywhere, and it just had a tantrum and stormed off. These provisions don’t even make ''sense''. They are not even ''grammatical''. | With this provision it looks like the ’squad got to the point of maximum disarray, with all rocks upturned and slaters, bugs and cockroaches scuttling everywhere, and it just had a tantrum and stormed off. These provisions don’t even make ''sense''. They are not even ''grammatical''. | ||
===The basic problem=== | |||
The problem to be solved is this: [[initial margin]] is designed to cover [[mark-to-market]] [[exposure]] between (usually daily) [[variation margin]] calls. It is usually calculated to cover the likely possible drop in portfolio value over that “liquidity period”. | |||
However, when a counterparty goes ''[[titten hoch]]'', the process of closing it out and determining who is owed what is a long process. For a big complex financial institution, can be months or years. One day’s market move starts to look a little bit meagre. Seeing as the [[initial margin]] is, by regulation, in the shape of non-cash assets, it too is subject to the vagaries of the market and can move up or down. So it might not quite cover what you thought it was going to cover. | |||
to a great extent, that is just the non-linear unpredictable risk of the market. The answer is to take more collateral, of better quality, but that has its limits. So the alternative is to at least allow people in to convert the collateral into cash, to stop half of the portfolio moving around. | |||
But fundamentally, this is just one of those risks it would be lovely to banish, but you can’t. Sorry, regulators! | |||
===What were they ''trying'' to achieve? go figure.=== | ===What were they ''trying'' to achieve? go figure.=== | ||
God only knows what they thought they were ''trying'' to achieve. Whatever remote objective they had as a goal, and whatever contingencies were dogging [[the ’squad]]’s fevered subconscious as they trudged, in formation, through the moist, dengue-infested swamps of of this drafting exercise — and there is some talk that there may have been skirmishes with pockets of rogue [[Buyside counsel|buy-side advisors]] to distract them as they went waded through the hip-high sludge — what is left to posterity is a confused, gibbering disaster. | God only knows what they thought they were ''trying'' to achieve. Whatever remote objective they had as a goal, and whatever contingencies were dogging [[the ’squad]]’s fevered subconscious as they trudged, in formation, through the moist, dengue-infested swamps of of this drafting exercise — and there is some talk that there may have been skirmishes with pockets of rogue [[Buyside counsel|buy-side advisors]] to distract them as they went waded through the hip-high sludge — what is left to posterity is a confused, gibbering disaster. | ||