2.8.4 Collateral Preferences

User can define the collateral preferences for the agreement if the agreement is used for Collateral Margining purposes. Collateral tab is enabled only if ‘Collateral Margining’ is checked for Agreement Purpose in Main tab, for this agreement.

  • Can define different margin codes for different margin types applicable for the agreement
  • Can define the allowed collateral types and other preferences for each margin code
  • Can define the calculation and settlement preferences for each margin code
  • Can define the securities eligible to be given as collateral for each margin code

Click the Collateral tab in the Master Agreement Maintenance screen to open this screen.

Figure 2-22 Master Agreement Maintenance - Collateral

Description of Figure 2-22 follows
Description of "Figure 2-22 Master Agreement Maintenance - Collateral"

The following table describes the fields captured for collateral preferences for the agreement.

* indicates mandatory fields.

Table 2-11 Treasury Master Agreement Maintenance - Collateral

Field Description

Margin Product

Select the Margin-Netting Product, to which this agreement is linked.

  • Only products enabled for Collateral Margining is displayed for selection

Product Description

Displays the description of the Product selected.

Margin Calculation Agent

Select the party that is responsible for margin calculation for this agreement.

  • Can select ‘Bank’ if bank is responsible for margin calculation
  • Can select ‘Counterparty’ if counterparty is responsible for margin calculation
  • Can select ‘Joint’, if both parties are jointly responsible for margin calculation and must agree on the margin calculated
  • Can select ‘Clearing House / CCP’, if a clearing house / ccp is responsible for margin calculation and the party role selected for the agreement is not ‘Clearing House / CCP’
  • Example, when the agreement is with clearing broker and margin calculation is done by the clearing house of the exchange
  • Can select 'ThirdParty', if a third party is responsible for margin calculation
  • ‘ThirdParty’ can be a calculation service provider, regulator, clearing house/CCP, etc.
  • If not specified, this field is set to ‘Counter party’ by default

Third-Party Calculator

Select the third-party calculator that is responsible for margin calculation for this agreement.

  • This field is applicable and mandatory only when the Margin Calculation Agent selected is ‘ThirdParty’
  • Can be one of the Third-Party Calculators maintained using ‘Treasury Static Type Maintenance’ function with type as ‘MARGIN_TPC’
  • Example: ISDA, etc.

Margins Applicable

Group of fields to capture the details about the margins applicable for this master agreement.

  • At least one margin code should be defined with margin type as Variation Margin (VM) or Any Margin (AL)
  • Multiple Margin Codes can be defined, by clicking on the ‘+’ button
  • However, Margin Code cannot be deleted by clicking on the ‘-’ button, after subsequent authorization of the agreement

Margin Code

Enter a unique code that identifies the margin applied for this agreement.

  • This field cannot be amended after first authorization of the agreement
  • This code should be unique and cannot be used to identify any other margin for the same agreement
  • This code should be minimum 5 characters in length and can enter a maximum of 10 characters

Margin Description

Enter a description for the margin code.

  • A minimum of 10 and maximum of 100 characters can be entered for description

Margin Type

Select the Margin Type for the margin code is defined.

  • This field cannot be amended after first authorization of the agreement
  • Select ‘Initial Margin’ (IM), if this margin code is for transferring initial margin for the exposure from the transactions linked to this agreement
  • Select ‘Independent Amount’ (IA), if this margin code is for transferring additional margin, independent from initial margin, for the exposure from the transactions linked to this agreement
  • Select ‘Variation Margin’ (VM), if this margin code is for transferring margin due to revaluation (MTM) of the exposure from the transactions linked to this agreement
  • Select ‘Funding’ (DF), if this margin code is for transferring margin for the purposes of creating a trading limit or contributing to the default fund applicable for this agreement
  • Select ‘Any Margin’ (AL), if the same margin would be used for transferring any type of margin for this agreement
  • More than one Margin code can be defined for the same Margin Type
  • If not specified, this field is set to ‘Any Margin (AL)’ by default

Margin CCY

Specify the currency in which the margin required is calculated for this margin code.

  • Exposure in different currencies is converted to the margin currency equivalent for arriving at the final exposure for margin calculation purposes
  • Set to branch currency by default, if not specified

Cash & Deposit

Indicate whether collateral can be provided in Cash or Deposits, for this margin code.

  • Defaulted from the Margin product linked to the agreement
  • Can be checked only if ‘Cash’ is checked for the margin product
  • However, can be unchecked even if ‘Cash’ is checked for the margin product
  • Mandatory if ‘Securities’ is unchecked

Securities

Indicate whether collateral can be provided as Securities, for this margin code.

  • Defaulted from the Margin product linked to the agreement
  • Can be checked only if ‘Securities’ is checked for the margin product
  • However, can be unchecked even if ‘Securities’ is checked for the margin product
  • Mandatory if ‘Cash’ is unchecked for the Margin Product

Allow Reuse

Indicate whether the collateral received for this margin code can be reused for settling or repledging for other contracts or margins, by the receiver of the collateral.

  • Unchecked by default

Net Settle

Indicate whether the collateral exchanged for this margin code can be net settled with other margins or components or contracts or agreements with the same party.

  • Unchecked by default

Margin Calculation

Select the reference for the margin calculation preferences to be used, for this margin code.

  • If ‘Agreement’ is selected, then calculation preferences is separately defined for the margin code
  • If ‘Instrument’ is selected, then calculation preferences defined for the instrument product is used and preferences will not be separately defined for the margin code
  • ‘Calculation’ button at the bottom of the ‘Collateral’ tab is disabled
  • If ‘External’ is selected, then margin calculation is received from an external system or provider
  • ‘External’ is set by default, when the Margin Calculation Agent selected is ‘Clearing House / CCP’ or ‘ThirdParty’
  • ‘Calculation’ button at the bottom of the ‘Collateral’ tab is disabled
  • This field is set to ‘External’ by default

Parent topic: Master Agreement