Scion's agreements with counterparties required daily collateral valuation in both directions.

Judged as of 2025, about Scion's mid-2000s CDS counterparty arrangements. True: credit support annexes, ISDA documents, Scion investor letters or reliable accounts show that collateral was valued and exchanged daily in both directions, meaning either party could be required to post collateral depending on mark-to-market moves. Mostly true: daily two-way collateral valuation was the rule, but with a minor exception, for example a threshold before collateral had to move, or some counterparties marking slightly less often. Mixed: the requirement held for some major counterparties but not for others, or valuation was daily but collateral moved in only one direction. Mostly false: collateral marks happened only periodically (weekly, monthly), or only counterparties could call collateral, and daily two-way valuation was at most an occasional practice. False: the documents show there was no collateral valuation requirement of this kind.

Set before the research began.

1. E1 Michael Burry's Testimony Before The Financial Crisis Inquiry Commission ValueWalk · 29 March 2011 Own record

   “There are variations on this but, you know, I would give directions to the back office sometimes to let it go.”

2. E2 Scion 2006 4q Rmbs Cds Primer and Faq Scribd (copy of Scion Capital's Subprime Mortgage Strategy letter) · 7 November 2006 Own record

   “Importantly, we negotiated ISDA contracts that give us the right to collateral should our swap positions move in our favor. To the extent the Funds see the values of our swap positions move the other way, the Funds send collateral to our counterparties covering the decline in value of the positions.”

3. E3 Transcript of Michael Burry's talk, “Missteps to Mayhem: Inside the Doomsday Machine with the Outsider who Predicted and Profited from America's Financial Armageddon” Vanderbilt University News · 13 April 2011 Own record

   “Our counterparty dealers priced, or marked, our book of CDS, and our ongoing fight with these dealers such as Goldman Sachs and Morgan Stanley over the validity of these marks hit absurd levels.”

4. E4 Scion 2006 4q Rmbs Cds Primer and Faq Scion Capital (letter hosted on Scribd) · 7 November 2006 Own record

   “Importantly, we negotiated ISDA contracts that give us the right to collateral should our swap positions move in our favor. To the extent the Funds see the values of our swap positions move the other way, the Funds send collateral to our counterparties covering the decline in value of the positions.”

5. E5 Scion 2006 4q Rmbs Cds Primer and Faq Scion Capital (letter hosted on Scribd) · 7 November 2006 Own record

   “The dealer counterparties are the marking agents for the Funds’ positions, and therefore the values set by these dealer counterparties determines how the collateral flows on a daily basis.”

6. E6 Michael Burry's Testimony Before The Financial Crisis Inquiry Commission ValueWalk · 29 March 2011 Own record

   “What was in the document was on number, literally. It was this position and this many dollars. So, some kid and spread but mostly it was in dollars and that was with the position was. So you could compare it to the prior collateral position and decide which way to go.”

7. E7 Transcript of Michael Burry's talk, “Missteps to Mayhem: Inside the Doomsday Machine with the Outsider who Predicted and Profited from America's Financial Armageddon” Vanderbilt University News · 13 April 2011 Own record

   “Our counterparty dealers priced, or marked, our book of CDS, and our ongoing fight with these dealers such as Goldman Sachs and Morgan Stanley over the validity of these marks hit absurd levels.”

8. E8 Scion Capital Subprime Mortgage Short Primer Scion Capital (Michael Burry), reposted on studylib.net · 7 November 2006 Own record

   “Importantly, we negotiated ISDA contracts that give us the right to collateral should our swap positions move in our favor. To the extent the Funds see the values of our swap positions move the other way, the Funds send collateral to our counterparties covering the decline in value of the positions.”

9. E9 Scion Capital Subprime Mortgage Short Primer Scion Capital (Michael Burry), reposted on studylib.net · 7 November 2006 Own record

   “The dealer counterparties are the marking agents for the Funds’ positions, and therefore the values set by these dealer counterparties determines how the collateral flows on a daily basis.”

10. E10 서브프라임 공매도 평가손 속의 확신 — Michael Burry (English text of Scion Q3 2006 letter) valuebeast.co.kr (unofficial translation site) · 5 October 2006 Own record

    “At the time, however, in the interest of investor comfort, we allowed the appointment of the counterparty as the marking agent for valuation and collateral call purposes.”

Scion's November 2006 investor letter, which the criteria name as an acceptable source, says Scion negotiated ISDA contracts giving it the right to collateral when its swap positions moved in its favour, and that the funds sent collateral to counterparties when positions moved the other way (E3/E5/E9). The same letter says the dealers' marks decided how collateral moved each day (E6/E10). Together these show daily valuation with collateral moving in both directions. However, in his FCIC testimony Burry said there were variations and that he would sometimes direct the back office to 'let it go', without saying in the quoted passage what 'it' was (E2). That remark may point to some variation in practice, so the verdict is mostly true rather than true. All of the evidence comes from Burry or Scion, and there are no independent documents such as the ISDA or credit support agreements themselves.