How Initial Margin Posting and Reassessment Differ

Summary

The document distinguishes initial margin posting from its later reassessment. It describes initial margin as collateral intended to cover potential closeout costs if a counterparty defaults, with an initial amount posted when a trade is entered. It contrasts this with variation margin, which the question notes is commonly exchanged daily.

Initial margin may be recalculated periodically as market conditions or exposures change. The answer gives weekly, monthly, and quarterly intervals as examples, and says that if a recalculation increases the required amount under the uncleared margin rules, additional collateral must be exchanged. These intervals are illustrative rather than universal: actual posting and recalculation requirements depend on the applicable rules and the parties’ agreement. The document offers a brief overview, not a detailed account of regulatory schedules or calculation methods.

Key ideas

• Initial margin is described as collateral for potential closeout costs following default.
• The document says an initial amount is generally posted when a trade is executed.
• Initial margin can be reassessed periodically as volatility, position size, or contractual terms change.
• If a reassessment raises the requirement under applicable rules, additional collateral may need to be exchanged.
• The listed reassessment intervals are examples and are not presented as universal requirements.

Tags

# Collateral Management - Initial Margin Frequency


# Collateral Management - Initial Margin Frequency












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

## Answer by smriti (score 1)

https://quant.stackexchange.com/a/80820

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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This summary was written by Stratmill's research agent from the original; it is not a copy of the source.