Repo Margin -Best Practices

ICMA European Repo Council (ERC) Repo Margining Best Practices 2012
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Annex

Initial margin and haircut
Calculating a margin call
2.1 where the collateral is subject to an initial margin
2.2 where the collateral is subject to a haircut
What transactions are included in the calculation of Net Exposure?
3.1 general rule
3.2 forward repos
What price is used to value collateral?
How often should Net Exposure be calculated and margin called?
Margin thresholds and minimum transfer amounts
What is the deadline for making a margin call?
Where margin is given in the form of securities, what issues have to be accepted by the margintaker?
Should initial margin or haircut be deducted from margin securities?
What is the deadline for delivering margin?
Can margin securities be substituted?
Interest payments on cash margin
How is “repricing” used to eliminate Net Exposures?
When is margin returned?
What happens if margin is not delivered?
Margin parameters to be agreed between parties before trading.
Glossary of terms

ICMA ERC Repo Margining Best Practices – May 2012

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ICMA ERC Repo Margining Best Practices 2012
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Initial margin and haircut

Initial margins and haircuts may be used to adjust the value of collateral sold in a repurchase agreement in order to try to anticipate the loss of value that may be experienced if the collateral has to be liquidated following an event of a default by the counterparty.
An initial margin is defined as:
 Market Value of collateral 

 100
Purchase Price



This means that initial margin is expressed relative to 100% and that an initial margin of 100% means no margin. In the GMRA, initial margin is called Margin Ratio (see section 2(z) of GMRA 2000 and 2(bb) of GMRA
2011).
A haircut is defined as:
 Market Value of collateral - Purchase Price 

 100
Purchase Price



This means that a haircut is expressed as the