Central Counterparty (CCP) Initial Margin — Posted by Clearing Member

💡 Accountant's Note

Post-Dodd-Frank and EMIR reforms (2010–2012), most standardized OTC derivatives (plain vanilla interest rate swaps, single-name CDS, certain FX derivatives) must be centrally cleared through a CCP. The CCP interposes itself as the buyer to every seller and seller to every buyer — eliminating bilateral counterparty risk. In exchange, clearing members must post: (1) INITIAL MARGIN: a pre-funded buffer against potential future losses (computed using SPAN or similar models — typically 3–10 days of worst-case loss), and (2) VARIATION MARGIN: daily cash settlement of gains and losses (similar to futures margining). Initial margin is a financial asset — the clearing member retains the beneficial ownership and receives interest (at a lower rate). The posted amount is NOT an expense; it is a transfer of a liquid asset into a restricted account.