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Initial Margin: When Does More Turn Out to Be Less? 

July 25, 2014
Paul Jones, InformationWeek

Changing margin regulations are set to affect the OTC derivative market, including initial margin risk models for non-cleared OTCs.

Just 36 percent of the initial margin (IM) posted by Lehman Bros at LCH was required to meet replacement and hedging costs of its portfolio. Many believe that the success of LCH in managing the Lehman default has led to both the regulatory push for central clearing and the application of CCP-style margining to the world of bilateral derivatives. Indeed, increasing the amount of collateral held against counterparty credit risk for non-cleared derivative seems consistent with the objective of ensuring the safety of the financial system.

Despite some perceived similarities, there are in fact some stark differences between IM within CCPs and the use of IM for non-cleared OTC derivatives. First in the complexity and liquidity of the products they margin, and second in the processes around which margin calls can be disputed.

Read More: InformationWeek

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