Template:M summ 2018 CSD 3(c)(iii): Difference between revisions

Template:M summ 2018 CSD 3(c)(iii) (view source)

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 [[3(c)(iii) - IM CSD Provision|The point]] where, with the greatest of respect, the {{imcsd}} gets ''totally'' over the front of its skis. Had it  just reined in its enthusiasm, and limited itself to dealing with *just* regulatory IM, that actually has to be posted, compulsorily, to a third party custodian, this document would have been shorter, less controversial, and ''way'' easier to understand. But no: {{icds}} went into bafflement overdrive.
-A casual reader might also wonder whether someone is having a laugh. If {{icds}} wanted to, they could scarcely have made this more convoluted, as our nutshell summary should indicate.
+A casual reader might also wonder whether someone is having a laugh, at our expense, about ''how'' these undoubtedly overcomplicated provisions are expressed. {{icds}} could scarcely have made this ''more'' convoluted, as our nutshell summary to the right should indicate.
-The problem {{icds}} was trying to “solve for” was the kind of counterparty who is ''already'' taking initial margin and wants to keep doing that, somehow, even now the technocrats have railroaded their way into this age-old process and mandated it by regulation. These include, for example, [[prime brokerage]] clients, who might have swap positions “cross-margined” with a wider range of physical and futures positions that the PB will want to margin and rehypothecate against in one place.
+===[[Initial margin]] and [[independent amount]]s===
+A common confusion in the {{isdama}} is its use of “{{csaprov|Independent Amount}}” to describe what everyone else in the market colloquially calls [[initial margin]]. Were they trhe same? were they different? it was quite difficult on a cold read to say, especially as an {{csaprov|Independent Amount}} ''looks'', in the {{csa}}, like it is meant to function as a distinct amount of standalone credit protection, held without reference to a given {{isdaprov|Transaction}}, but in practice it does not, and is called {{isdaprov|Transaction}}-by-{{isdaprov|Transaction}}.<ref>For a fuller discussion, see {{csaprov|Independent Amount}}.</ref>
-But it might be as simple as a dealer who has set independent amounts higher than those mandated by the regulators, and wants to keep them.
+Anyway, opportunistically {{icds}} has solved that problem by introducing two kinds of Margin Amount in the {{imcsd}}: the {{imcsdprov|Margin Amount (IM)}} and the {{imcsdprov|Margin Amount (IA)}}. Maybe someone thought this was a neat trick, I don’t know. It seems a dumb one to me: once everyone know {{csaprov|Independent Amount}} and [[initial margin]] were, for all intents and purposes, the same; now they are subtly different.
+The problem {{icds}} was trying to “solve for” was the swap counterparty who is ''already'' taking [[initial margin]] and wants to keep doing that, its own way, somehow, even now the technocrats have railroaded their way into the room and mandated by regulation their own version [[initial margin]], which you must do ''their'' way.
+These counterparties include, for example, those in a [[prime brokerage]] relationship, who might have their swap positions “cross-margined” with a wider range of physical and futures positions that their prime brokers will want to margin — and rehypothecate — as a single pool of assets and liabilities.
+But it might be as simple as a dealer who has set its {{csaprov|Independent Amount}}s higher than those mandated by the regulators, and wants to keep the higher value.
 So the {{imcsd}} contemplates, on one hand, ''regulatory'' [[initial margin]], which it calls “{{imcsdprov|Margin Amount (IM)}}”, and ''non''-regulatory [[initial margin]], which it labels with fond redolence to the old days of {{csaprov|Independent Amount}}s, as “{{imcsdprov|Margin Amount (IA)}}”.
-===The theory===
+===The theory of the {{imcsdprov|Margin Approach}}===
 Let’s call your existing, pre-regulatory initial margin arrangement your “IA”, and the regulatory requirement “IM”. IA could be more than IM, less than IM, or (unlikely, but let’s say) the same.