Some margin agreements specify that a counterparty must maintain a level of collateral that is a fixed percentage of the mark-to-market (MtM) of the transactions in the netting set. For this type of margining agreement, the Independent Collateral Amount (ICA) is the percentage of MtM that the counterparty must maintain above the net MtM of the transactions covered by the margin agreement. For example, suppose the agreement states that a counterparty must maintain a collateral balance of at least 140% of the MtM of its transactions. Further suppose for purposes of this illustration that there is no TH and no MTA, and that the MTM of the derivative transactions is 50. The counterparty posts 80 in cash collateral. ICA in this case is the amount that the counterparty is required to post above the MTM (140%x50 – 50 = 20). Since MtM minus the collateral is negative (50-80 = -30), and MTA+TH-NICA also is negative (0+0-20 = -20), the replacement cost RC is zero. In terms of the replacement cost formula:

RC = MAX {(V-C), (TH+MTA-NICA), 0}

= MAX{(50-80), (0+0-20), 0}

= MAX{-30,-20,0} = 0