protection tool in Derivatives (FX, IR and Commodities) to limit the opened loss position towards Counterparty throughout the entire life-time of the deal. This means that any deal may be concluded for longer period (like an FX-swap for 3YRS), however Margin call enables to assess the real market-to-market position stemming from movement of spot FX rates within this transaction in pre-agreed intervals (daily, monthly) and if any Counterparty is facing a loss position exceeding the agreed threshold (e.g. 250k – 1Mio EUR), then this loss position should be covered from initial amount, which was deposited upfront to secure the functioning of margin calls. This is important to have in place, as the market-rates change constantly and are hard to predict in long-term view and if the position was kept opened during the entire life-time, it could lead to situation that resulting loss could be dramatically high when compared with notional amount of the deal (even 50%), which could represent increased risk that Counterparty would rather default on it than pay-it out.

Margin calls can be concluded as bilateral, so effectively protecting both Counterparties or unilateral, which means that only one Counterparty is benefitting from this protection. This is pretty much adhered from negotiation power of the Counterparties and from rating/risk profile of the Counterparties (so that “stronger” entities were not used to pay margin calls while weaker were forced to). There was a big change in EMIR regulation in 2017 leading to more prudent regulation so that agreed margin calls should not be so much loose as in previous period, where these higher thresholds led to situation that no Margin call was applied in the end.

Following this, now there are more strict limits used in practice, so that even the best rated financial entities should be bound with zero Threshold and minimum Transfer amount to be capped at 500k EUR (on the contrary, the worst rated entities should have lower MTA around 50-100k EUR, so that collateral amounts covering losses will be transferred more frequently). These limits among other parameters incl. Initial amounts, Independent amounts, Minimum Transfer Amounts are stipulated in CSA (Credit Support Annex) to ISDA.