Variation Margin Agreement

As a result of losses related to Russia`s insolvency and other credit movements, companies that achieved an initial margin made strong credit decisions; Companies that avoid the initial margin could be considered too liberal. Market participants begin to establish, distribute or obtain documents relating to their (or counterparty) margin regulatory requirements. Suppose a trader buys 100 ABC shares for $10 each. The initial margin set by the broker for the purchase is 50%. This means that the broker must have $500 in his account at any time to trade. Let`s also assume that the maintenance margin is $300. If abc`s price falls to $7, losses of $300 in trading will be deducted from the original account. This means that the initial margina account balance is now $200, which is below the $300 maintenance threshold previously indicated. The new initial margin is $350 (50% of $700). The merchant would have to charge his account at $150 to continue the trade. The initial margin must be clearly and precisely indicated in the confirmation (or in another location, if any).

Confirmations should be sent to the other party as soon as possible and followed immediately, if they have not been recognized. In addition, the security unit should be informed of all transactions requiring an initial margin; System data or collateral calculations must be adjusted accordingly. ISDA has published the ISDA self-disclosure letter, which aims to help market participants exchange the necessary information to determine if and when their business relationship is subject to regulatory margin requirements. The latest version (published on June 30, 2016) concerns Canada, the European Union, Japan, Switzerland and the United States of America. On August 16, 2016, ISDA released the isda Variation Margin Protocol 2016 (PROTOCOLE VM). The VM protocol allows parties to modify their existing credit support documents or enter new credit support documents in a manner consistent with regulatory line of credit requirements. An operator who wishes to use the VM protocol complies with the VM protocol by sending a letter to the ISDA, as well as the applicable loyalty fee.

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