Margined counterpaty

[Imad]

Hi David,

I couldn't understand the difference between margined and non margined counterparties. I know that margined counterpaty is the one that uses a margined agreement. Am I right?

Thanks
Imad

 

[David Harper CFA FRM]

Hi Imad,

I'm not fluent with "margined counterparty" as a technical phrase (context?), I would just assume that it refers to a counterparty who must post margin per a collateral agreement (either unilaterally, or bilaterally). I mean, if Bank A has an OTC position with Counterparty B, then Bank A incurs credit exposure (e.g., PFE) on gains in its position, and Bank A mitigates its counterparty exposure to Counterparty B when B must post collateral when B's MTM position experiences losses. So, I would *think* that, from A's perspective, B is the margined counterparty. Thanks,