Margin
The anglicism margin ( ˈmaʀʒin ; German margin , but with a different meaning) relates in economics and in particular in finance to a security deposit that is to be provided by the investor in certain securities transactions or contracts about commodities to credit institutions , securities service companies or brokers .
General
When speculating with derivatives such as contracts for difference , options , swap transactions or futures contracts , the investor is exposed to a high risk of price changes because he initially has to invest less capital than is later required - for example when realizing losses for settlement . The greater the leverage effect , the higher the subsequent profit or loss potential of an underlying asset . The collateral provider of the margin is the buyer and seller, the collateral taker is a bank, an investment service company or a broker.
The margin is a security that is intended to counteract the risk of non-performance of open positions . So that the counterparty of the buyer or seller does not have to take any risk of default , the security deposit should prevent this risk of default. Since the counterparties (banks, investment services companies or brokers) also have to deposit the maximum expected losses with the clearing house through a margin, there is a chain of margins within the counterparties involved in a single contract .
Margins are available in both exchange trading and OTC trading . Exchanges require margins, for example on futures contracts, short positions on options or short sales of stocks . In OTC trading, margins are required for forwards or swaps .
species
There are three types, namely the initial margin (or guarantee deposit ; English initial margin ; Eurex : Additional Margin ), the margin ( English variation margin ) and the Maintenance Margin ( english maintenance margin ). They are to be provided by the buyer and seller. The amount of the initial margin is determined by the futures exchange according to the “risk-based margining system” (RBM), whereby the historical volatility of the respective underlying is used as an indicator for the risk of the futures exchange . When buying options, for example, this initial margin corresponds to the amount of the option premium to be paid later. It thus serves to cover any costs of closing out . A variation margin is due when the initial margin is used up due to losses. It is based on the price development of the underlying and can change positively or negatively. The positive change leads to a credit that increases the initial margin , the negative one to an obligation to make additional payments. The maintenance margin is payable if the investor to purchase an effect collateral loan ( English margin trading ) takes to complete. It is usually 25% of the loan amount.
Legal issues
The obligation to provide margins by the protection seller (investor, speculator , trader ) to the protection buyer (credit institute, investment services company or broker) results from a margin agreement. These are contracts that serve in particular to secure the counterparty default risk of derivatives. Here, the contracting parties agree, among other things, to open a special margin account, whereby margins are to be paid by depositing bank balances or in the form of securities . In addition, the agreements regulate the type, amount and maturity of the margins and the frequency of valuations of the underlying assets. Every trading day, Eurex values according to the mark-to-market method.
According to Art. 11 (3) of the Market Infrastructure Ordinance , transactions in derivatives that are not subject to the clearing obligation must be collateralized in the EU member states . Variation Margin and Initial Margin are provided as collateral instruments. The Variation Margin is used to regularly compensate for fluctuations in the value of the derivative contracts, while the Initial Margin is intended to cover current and future expected fluctuations in value that may arise between the last exchange of margins and the re-coverage of the risk or the sale of the position if one of the Counterparties cannot meet their contractual obligations.
In terms of securities law , margins are exclusively referred to as financial collateral ( Section 84 WpHG ). The Financial Collateral Guideline ( Directive 2002/47 / EC ) issued for this purpose in June 2002 deals with the provision of securities and cash balances as collateral. Especially securities in interbank trading regularly as part of Pawn shops , securities lending and repurchase agreements as well as purchase and repurchase agreements , known as repos ( English repurchase agreements ) as security for loans transferred. According to Art. 2 No. 1a of this guideline, financial security is security that is provided in the form of a transfer of full rights or in the form of a limited security interest in rem . In particular, the guideline protects the agreements customary in banking, according to which the security seller is obliged to provide additional security in the event of fluctuations in the value of the securities provided or fluctuations in the value of the secured liability in order to cover the unsecured "margin" (margin security).
This financial collateral guideline is part of German banking law through Section 1 (17) KWG . Since margins meet the requirements for financial collateral in Art. 207 of the Capital Adequacy Ordinance, they are considered by the collateral buyer as a credit risk mitigation technique with collateral. In Section 130 (1) InsO , it is made clear that margin security customary in banks does not constitute incongruent cover in the event of the insolvency of the protection seller .
Margin call
The term margin call is understood to mean the request by the protection buyer to pay the margin to the protection seller based on the margin contract. The margin call usually concerns the obligation to make additional contributions to the variation margin, which must be met within 24 hours in the event of a revaluation; in the event of non-performance , the position will be closed.
Individual evidence
- ^ John Hull, Risk Management: Banks, Insurance, and Other Financial Institutions , 2011, p. 118
- ↑ Robert Schittler / Martin Michalky, The Big Book of Stock Exchange , 2008, p 588
- ^ Christoph Graf von Bernstorff, Finanzinnovationen , 1996, p. 31
- ↑ Krishna Sasidharan / Alex K Mathews, Financial Services and System , 2008, p. 476
- ↑ Susen Claire Berg, On the regulatory consideration of the credit risk , 2019, p. 80 FN 394
- ↑ BT-Drs. 15/1853 of October 29, 2003, draft of a law implementing Directive 2002/47 / EC of June 6, 2002 on financial collateral and amending the Mortgage Bank Act and other laws , p. 1.
- ↑ BT-Drs. 15/1853 of October 29, 2003, draft of a law implementing Directive 2002/47 / EC of June 6, 2002 on financial collateral and amending the Mortgage Bank Act and other laws , p. 11.
- ↑ BT-Drs. 15/1853 of October 29, 2003, draft of a law implementing Directive 2002/47 / EC of June 6, 2002 on financial collateral and amending the Mortgage Bank Act and other laws , p. 15.
