OTC Derivatives ReformSponsored by MarketAxess
Cross Margining Melee
01 March 2011:
TABB Group's Adam Sussman and Kevin McPartland discuss moves by New York Portfolio Clearing and the CME to ease margin requirements for trading certain derivatives. Do lower margins equal greater risk?
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1 Comment to "Cross Margining Melee":
jlafaman
03 March 2011
Cross Margining should not increase risk, by "lowering" the collateral requirement. Risk is a function of price, liquidity, concentration, etc.. Having a view of the entire portfolio that recognizes proper hedges is actually better than having only a partial one sided picture. It also limits the exposure to making a payment out on one side, when you have exposure or a call on the other side. Taking margin against a full view of the portfolio, is more efficient for the risk manager and a better utilization of capital for the client. Ultimately it helps to limit exposures as opposed to increasing them.
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