Exchange on margin carries

Initial margin central clearing

In the transaction depicted above, the dealer is intermediating a transaction between an insurance company and an asset manager. Importantly, however, the dealer is a direct counterparty to both CDS transactions. In terms of notional exposure, the insurance company has a $100 (buy) exposure, the asset manager has a notional (sell) exposure of $100 and the dealer has a notional (sell and buy) exposure of $200. The $200 notional exposure of the dealer reflects the fact that the dealer is on one side of both transactions. Accordingly, the total notional exposure of the combined transaction is $400 ($200=$100+$100). The total notional exposure is a simple measure of the derivative exposure of all counterparties engaged in the transaction. Importantly, the total amount of margin required from all counterparties will be related to the total notional exposure. If each counterparty is required to post initial margin of 1 percent, these "twin" transactions would require $4 of collateral.

A key point is that transactions resulting in smaller total notional exposures will generally create less counterparty exposure and thus require less margin than a transaction with a larger total notional exposure.

Now suppose that the two transactions described above are moved to central clearing. When this happens, a central counterparty (CCP) interposes itself between each buyer and each seller so that every counterparty engaged in the CDS transaction only faces the CCP. This situation is depicted in Figure 2.

Figure 2
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Shipping by airmail from UK: items normally reach US addresses within a few days but can take longer THE STOCK EXCHANGE: The clearing House. London, antique print c1880
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  • Caption below print: The clearing house
  • Condition: Good; suitable for framing. However, please note: Verso text quite apparent in margin; The image shown may have been taken from a different example of...
  • Size: 14.0 x 14.0cm, 5.5 x 5.5 inches (Small)
  • Type & Age: Year printed c1880. Antique wood engraved print
  • Verso: There are images and/or text printed on the reverse side of the picture which are likely to show through the page to some extent because the paper is quite...
Shipping by airmail from UK: items normally reach US addresses within a few days but can take longer LONDON: Clearing House, Lombard St, antique print, 1847
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  • Caption below print: The Clearing-House, in Lombard-Street
  • Condition: Good; suitable for framing. Please check the scan for any blemishes prior to making your purchase.
  • Size: 14.5 x 23.5cm, 5.75 x 9.25 inches (Medium)
  • Type & Age: Year printed 1847. Antique wood engraved print
  • Verso: There are images and/or text printed on the reverse side of the picture. In some cases this may be visible on the picture itself (please check the scan prior...

Popular Q&A

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Where can I find margin requirements of CME?

I need to know margin requirements of gold and silver futures in CME, Thus I need official link to the list of margin requirements. I searched the web and CME website, but I could not find it. Please help

This list is about 39 pages, so it's easier to click on "Download Data" then do a search (Ctrl-F) for what you want in Excel.
PRODUCT NAME INITIAL MAINT.
E-MINI SILVER FUTURES 3375.00 2500.00
COMEX MINY GOLD FUTURES 4556.00 3375.00
Your broker will have their own set of margin requirements.

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