Initial margin rules for buyside will affect derivative pricing

Author: Olly Jackson | Published: 3 Aug 2018

Buyside firms will be directly concerned by  initial margin rules in September. This may impact derivative pricing and volumes ahead of 2020 when all counterparties trading over-the-counter (OTC) derivatives are set to be included within the rules.

Initial margin, a percentage of the purchase price of a security that an investor must pay as a fee, will force upward pressure on prices.

While trading volumes are currently strong, there are certain segments of the derivatives market that are being affected by the regulatory requirements and this is only going to increase in the next 18 months.

"This drastically changes the pricing of these products"

"If you are moving from a position of trading products without exchanging collateral and now trading on a fully collateralised basis, that can drastically change the pricing of these products," said Kerion Ball, partner at Ashurst.

The rules for non-centrally cleared derivatives under the European Market...