Recent developments in portfolio margining and cross-margining |
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| Authors: | Leitner Anthony J; McDaniel James R |
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| Institution: | Correspondence: * Anthony J. Leitner, Managing Member, A J Leitner & Associates, LLC, Email: leitnaj@msn.com and James R. McDaniel, Partner, Sidley Austin LLP, Email: jmcdaniel@sidley.com. |
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| Abstract: | The first 150 words of the full text of this article appear below. Key points- Recently adopted rules in the United States significantlyexpand the amount of credit broker–dealers can extendto active traders in equity securities and related derivatives.The new rules allow leverage based on an assessment of the riskin a client's portfolio.
- These developments may change thecompetitive landscape in two ways. First, they may impact thebusiness currently done by London-based firms by alleviatingthe regulatory disparity that currently drives significant USgenerated equity-financing business to London. Second, the newrules give US broker–dealers a competitive advantage overUS banks in regard to credit extended to US persons to purchaseand carry equity securities.
- The following article discussesthe new rules as well as legal issues that must be resolvedto assure that the full benefits of these changes can be realizedacross all equity products. These issues involve a resolutionof the differing customer-protection regimes between two . . . Full Text of this Article]
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1. Introduction
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2. What is ‘Portfolio Margining’?
| Background of portfolio margin regulation for equity securities products Development of portfolio margin rules Portfolio margin computation Eligible customers Required approval and limitation on aggregate margin extended Managing margin deficiencies Day trading Risk disclosure Positions not eligible for margin treatment Issues raised by the new rules
3. Cross-margining—overview of existing cross-margining programmes
| Cross margining at the clearing level—two models The one-pot model Commodity Exchange Act versus Securities Exchange Act of 1934 Segregation of customer funds Clearing firm insolvency The two-pot model Cross-margining at the firm level Cross-margining accounts of market makers Cross-margining accounts of customers
4. The future: expansion of cross-margining to new products and users
| Making customer cross-margining work under SIPA Deciding on a model: one-pot or two-pot? The challenge of including equities The challenge of including OTC derivatives
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