Alan Sheehan of Adenza explores the three different options set out by ISDA for managing the combination of independent amount and regulatory initial margin and explains why the simplest approach operationally is likely to work out more expensive for the posting party.

The Uncleared Margin Rules’ (UMR) documents, at least the early ones, seem to have ignored or maybe conveniently forgotten the fact that nonregulatory initial margin or independent amount (IA) existed.

Certainly, for the first three phases of UMR up to September 2018, no firms paying IA seem to have been pulled into the world of regulatory initial margin (Reg IM). Hence the movement of IA continued as part of the variation margin credit support annex (CSA) processing.

With Reg IM phase five approaching (planned for September 2020 until the recently announced delay to September 2021) the market has realised that firms paying IA will also need to pay (and receive) Reg IM.