Margin rules snare FX options users
US banks forced to post margin on ‘naked’ trades, with buy-side firms soon to follow
A kink in the collateral rules for non-cleared derivatives is proving costly for banks that trade foreign exchange options – and the problem is going to get worse from next September.
The rules require dealers to post margin on FX options, but not on deliverable FX forwards, which are a common hedge for options. This means dealers are unable to offset the exposures against each other to reduce their margin requirements.
“The problem with hedging your FX option exposure with a deliverable
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