OTC Derivatives and Collateral – The Collateral Lifecycle – Throughout Lifetime of Trade – Issuing Margin Calls

The firm's margin call notification (MCN) must be issued to the counterparty, so as to be received by the counterparty no later than the deadline (Notification Time) stated within the relevant CSA. From a legal (CSA) standpoint and by default, MCNs received beyond the documented deadline are officially treated as late receipts and will be paid one day later or will be waived and recalculated the next day. Assuming the counterparty agrees the margin call amount, the counterparty must decide (where the CSA permits a choice) in which form the margin call is to be settled, whether by payment of cash or delivery of bonds. The step of verifying the collateral proposed by the counterparty differs according to the nature of the collateral, whether cash or bonds; such differences are outlined in the chapter. Whenever cash or bond collateral has been received, it is essential that the exposed party maintains accurate and timely records.