For over-the-counter derivatives covered by Japan's margin rules, financial instruments business operators and similar firms calculate, every day and for each counterparty, the total market value of the trades and the market value of the collateral. When the difference exceeds an amount the parties agreed in advance as not requiring a transfer, the firm immediately asks the counterparty to post or return variation margin equal to the difference.
Consider a hypothetical example of a contract with a threshold (the amount up to which no collateral is required) of zero and a minimum transfer amount (the smallest amount that is delivered) of 50 million yen. If the trades have a positive market value of 1 billion yen and the firm holds 800 million yen of collateral, it asks the counterparty to post the 200 million yen difference. If the market value later falls to 700 million yen, the counterparty asks the firm to return 300 million yen of the 1 billion yen of collateral.