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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. | [[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. | 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. | ||
===[[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 | 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)}}”. | 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. | 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. | ||