Variation margin
WHAT IS THIS? Variation margin is a payment – typically made daily, in cash – to reflect changes in the market value of a trade, or portfolio of trades. In over-the-counter derivatives markets, variation margin is traditionally seen as a buffer against counterparty default; in listed derivatives, it is treated as settlement.
Does initial margin eliminate counterparty risk?
Andersen, Pykhtin and Sokol show the existence of residual exposure after initial margin posting
Fear of something worse seen as key to CCP recovery
Forcing banks to pick up defaulted trades is “viable option”, says Fed researcher
OCC seeks leverage ratio relief as liquidity shrinks
85% of CCP’s volumes now short contracts on 20 biggest names, claims risk chief
Dealers crack down on clients with dual netting sets
Pricing adjustments for posting non-cash collateral can run to 100bp
Dealers struggle with VM in non-netting jurisdictions
EU exemptions from margin posting are either hard to obtain or face client resistance
Buy side may have to take on CCP losses – FSB’s König
Exempting ailing banks from CCP wind-up process could force wider allocation of losses
Legacy booking models impede NDF clearing, banks say
Novation lag holds up clearing of forex products; some say dealers are dragging feet
Dealers at odds with Fed on variation margin relief
Significant exposure test should be applied on a gross basis, Risk.net has learned
Variation margin relief sparks swaps pricing disputes
Banks divided over whether to price trades using current CSAs or theoretical new agreements
Hazy guidance causes chaos on first day of VM regime
"We don’t know what the rules are," says one senior banker
Vague VM relief criteria creates trading uncertainty
Banks face lack of clarity on extent of margin rule forbearance
JFSA eases VM rules for cross-border trades
Japanese firms with non-compliant CSAs can trade with certain foreign counterparties from March 1
Regulators relent ahead of VM big bang
Firms with 'significant exposures' must stick to March 1 deadline, however
VM push fails to deliver cleaner CSAs
Dealers have softened stance on collateral terms as March 1 deadline approaches
Japan holds firm on VM deadline as Fed tracks progress
JFSA says no “strong reason” for delay; Bafin and Fed monitor developments
Banks get no relief from CFTC’s variation margin delay
No-action letter will benefit only a dozen or so swaps brokerages and energy firms
Forex swap margin treatment uncertain ahead of VM deadline
With one month to go, market participants are still unsure how to treat foreign exchange derivatives
Banks seek to pry open CCP black boxes
Clarity on model inputs may have averted Brexit chaos, FCMs claim
EU will stick to March 1 variation margin deadline
US regulators also unlikely to delay as a result, say dealers
Australian VM relief undermined by backloading rule
Trades entered during six-month transition period will need margin from September 1
OTC infrastructure service of the year: AcadiaSoft
Risk Awards 2017: Hub receives 10 million lines of data daily under new margin regime and it has big plans for the future
Clearing house of the year: LCH
Risk Awards 2017: CCP enjoys stellar year for volumes, and demonstrates willingness to adapt following Brexit stresses
Law firm of the year: Allen & Overy
Risk Awards 2017: Law firm played a key role in the struggle to meet the September 2016 margin deadline
LCH platform to provide risk calculations for margin hub
SwapAgent agrees to send standardised sensitivities for bilateral trades to AcadiaSoft for IM calls