To calculate margin on an interest rate swap you need two pieces of information:
Source: BIS Non-Centrally cleared derivatives 2013, Initial Margin Requirement, % of notional exposure)
Source: BIS Summary of changes to implementation of the margin requirements for non-centrally cleared derivatives
Notional Amount | $100 million |
Maturity | 4 years |
Fixed Leg | Paid Semi-Annual |
Floating Leg | Received Quarterly (RESET RATE = 3 Month LIBOR) |
Margin (% of notional) | 2% of notional amount (see appendix A) |
Collateral Posted | 1 year US treasury |
Haircut (1yr. Treasury) | 2% (see Appendix B) |
N.B. Haircut minimizes administrative expense of sending collateral back and forth by taking into account the volatility and credit quality of the collateral asset. In order to meet this initial margin call this counterparty will post $2,041,000 U.S. Treasuries maturing In one year.
Notional Amount | $100 million |
Maturity | 4 years |
Fixed Leg | Paid Semi-Annual |
Floating Leg | Received Quarterly (RESET RATE = 3 Month LIBOR) |
Margin (% of notional) | 2% of notional amount (see appendix A) |
Collateral Posted | 1 year US treasury |
Haircut (1yr. Treasury) | 2% (see Appendix B) |
INITIAL MARGIN | $2,041,000 U.S. Treasuries maturing In one year |