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My understanding is that initial margin presents over collateralization and comes into play in an actual default scenario as it aims to cover closeout costs. I was wondering what is the frequency of Initial Margins ? (i.e: I know the new norm with variation margins' frequency is daily)

Thanks

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  • $\begingroup$ IM formalities are covered in, for example, an ISDA IM credit support annex if you have an ISDA arrangement in place. It covers thresholds, minimum transfer amounts (MTA) and payment frequencies. Of course, this agreement must be in accordance with current law. For example, the EU stipulates a calculation no less than every 10 days, see for example Article 9 (2)e for the European Union (eur-lex.europa.eu/legal-content/EN/TXT/PDF/…. In practice, the calculation frequency is commonly daily and exchange takes place when the amount exceeds the MTA. $\endgroup$
    – Kermittfrog
    Commented Dec 8, 2020 at 7:27
  • $\begingroup$ Thanks a lot ! Very clear $\endgroup$
    – saksobeat
    Commented Dec 8, 2020 at 8:10

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Initial Margin is required when a trade is executed, and it's typically posted once at the outset of the trade. This initial collateral is meant to cover potential closeout costs in case of default.

While Initial Margin is posted upfront, it may be periodically re-assessed (usually on a weekly, monthly, or even quarterly basis). The reassessment depends on several factors, such as changes in market volatility, position size, or the agreement between counterparties.

Under the UMR, If the recalculated IM demands more margin from the C/P then collateral needs to be exchanged.

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