To protect the default waterfall from exhaustion, CCP risk management teams require clearing members to post collateral, calculated using daily margin models.
Deconstructing Margin Classes
  • Initial Margin (IM): Pre-funded collateral deposited by a member before executing a trade, calculated using Value at Risk (VaR) models to cover potential future price swings over a set liquidation window.
  • Variation Margin (VM): Cash payments collected and distributed throughout the trading day to cover actual, real-time market price movements. [1]

  Margin Type   |   Primary Calculation Trigger   |   Operational Funding Asset Style
----------------+---------------------------------+---------------------------------------
  Initial Margin| Value at Risk (VaR) projections | High-grade sovereign bonds & cash deposits
  Variation Cash| Live mark-to-market valuations  | Strictly liquid domestic
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