Lesson 24 of 25 · 7 min
What the hand method cannot see
The reconstruction stops at the lender's mark, the intra-day test, and any haircut that has not been written down.
The hand method sees public last sales, last known units, last printed haircuts, a published index plus a known spread, and the day-count in the letter. It does not see the mark the lender posts if that mark is not the print. It does not see an intra-day test run at 11:40 on a print that has already reversed by the close. It does not see a haircut revised in a memo that has not become a letter. It does not see a concentration overlay that is applied inside the lending-value column and never itemised as its own row.
It also does not see a cross-default that brings another facility's event onto this one, a settlement fail that leaves units you still count, or an internal buffer the lender runs ahead of the 70 percent clause. Those are not small omissions in the same units as a $2,609.22 weekly accrual. They are inputs the reconstruction has no tape for. Treating the reconstructed 55.59 percent April headroom as the tested figure is treating an observed remainder as the private one.
Track 16 lesson 25 stopped a model at the edge of its assumptions. The hand method stops at the edge of its documents and its prints. Inside that edge the arithmetic is exact: $1,858,563.47 ÷ 0.70 is $2,655,090.67 on every morning you form it. Outside that edge the method has nothing to multiply. The honest sentence is that the reconstruction is complete relative to what it can see, and silent relative to what it cannot.
A hand reconstruction is exact on its inputs and silent on the lender's mark, the intra-day clock, and any schedule that has not been written down.
Key terms
- Unseen mark
- A price the lender posts that is not the public last sale. The tape cannot disclose the gap.
- Intra-day test
- A maintenance evaluation run on a print that may not be the close. The letter, if it comes, will show a different as-of.
- Unwritten schedule
- A haircut, overlay or internal buffer that is in force and has not appeared on a letter you hold.
Worked example
What April's 55.59 percent does and does not contain
Reconstructed April headroom 55.59 percent from $6,015,195.50 and $2,671,065.47. Public last sales, March units, March haircuts, published 7.22 percent.
- Contained: public book
- $6,015,195.50
- Contained: accrued trigger
- $2,671,065.47
- Not contained: lender mark versus print
- Unknown dollar gap
- Not contained: a test at 11:40
- Unknown intra-day book
- Not contained: a haircut memo not yet a letter
- Unknown lending value
- Not contained: an internal buffer ahead of 70 percent
- Unknown second clause
55.59 percent is exact on the inputs the tape and the last letter supply. It is silent on every input they do not.
Check yourself
A price-only April reconstruction prints headroom of 55.59 percent. Which of the following has that figure already included?
- The lender's 11:40 mark on Calder
- A haircut memo that has not become a letter
- An internal buffer ahead of the 70 percent clause
- Thirty days of 7.22 percent Act/360 on the March close, and five public last sales
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Educational only. Nothing in this lesson is investment, legal or tax advice, or a recommendation to enter into any transaction. Figures are illustrative and computed from the inputs stated in the lesson.