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.
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Margin settlement risk and its effect on CVA
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Fed weighing VM capital cut for cleared swaps
Powell implies support for practice that saved UBS $300m in capital
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Banks take aim at margin and trade-flow lag that can cause 95% of counterparty risk
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VM repapering exercise ‘a swing and a miss’
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A sound modelling and backtesting framework for forecasting initial margin requirements
Anfuso, Aziz, Loukopoulos and Giltinan propose a method to develop and backtest forecasting models for IM
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
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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