As part of our interest rates special Galen Stops looks at some of the predicted savings from cross-margining and the practical and regulatory challenges to achieving them.
New regulations in the
derivatives industry are increasing compliance costs for
numerous different market participants at a time when volumes
and investor confidence are low. The Basel regulations are
imposing greater capital requirements on banks while the
introduction of OTC clearing means that firms will have to
source and post more high quality collateral at the CCP, with
many anticipating a shortfall in such collateral as a
With available capital becoming
scarce, firms will be looking to optimise what they have and
use it in the most efficient manner possible. To help mitigate
the impact of the OTC clearing obligation clearing houses have
been touting portfolio margining, and in particular the
cross-margining of OTC and exchange traded derivatives, as a
method of reducing the margin requirements for firms at the CCP
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