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Rookie_Quant


Total Posts: 732
Joined: Jun 2004
 
Posted: 2017-06-09 20:23
Do margin requirements on different firm's derivatives vary for reasons other than credit rating?

For example, in practice is there often a different margin requirement for CDS of firm A vs B if they are of the same credit quality? Do things like more liquid names matter?

Also, how would you actual traders out there characterize the margin requirements on cash vs synthetic credit risk? Are there any general rules, i/e one more liquid or lower margin than the other?

"These metaphors and similes aint similar to them, not at all." -Eminem

HitmanH


Total Posts: 424
Joined: Apr 2005
 
Posted: 2017-06-11 22:37
In the equity world - there is definitely a margin add on for liquidity - typically based on position size as % ADV

Rookie_Quant


Total Posts: 732
Joined: Jun 2004
 
Posted: 2017-06-20 22:09
Thanks Hitman. A few follow-ups for you/anyone

-does this generalize to other security types? I/e if I wanted to take a cash bond or CDS position in a firm, does the trading volume/liquidity of those securities directly impact my margin costs?

-if the margin cost is a function of both the position size and underlying liquidity, does one effect dominate? That is, if a firm keeps the same position size (in absolute and %AUM) but there is a shock to the liquidity of the underlying equity/bond, will margin costs change dynamically?

If a security suddenly got way MORE liquid, would margin costs adjust downward, or is it more of a ratchet-type effect?

"These metaphors and similes aint similar to them, not at all." -Eminem
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