Financial counterparties and non-financial counterparties that exceed the clearing threshold are required to value their outstanding OTC derivatives transaction at market value on a daily basis and to exchange collateral in a timely manner as security for the counterparty risk. A distinction is made between variable margin and initial margin. Variable margin is collected to hedge the risk arising from changes in the fair market value.
Initial margin is collateral that is collected by a counterparty to cover for its current and potential future exposure in the interval between the last collection of margin and the liquidation of positions or hedging of market risk, following a default of the other counterparty.
Initial margin should be calculated no later than the business day following the day on which an OTC derivatives transaction is concluded or is subject to a change in value.