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September 3, 2013

Footnote 15 Currency and Rates Portfolios Can Be Portfolio Margined | BCBS Proposal for Margin on Un-Cleared OTC Derivatives

The text of footnote 15 (page 12) in the Summary Of The Proposals for Margin on Uncleared OTC Derivatives reads thus:

"Currency and interest rate derivatives may be portfolio margined together for the purposes of these requirements. As an example an interest rate swap and a currency option may be margined on a portfolio basis as part of a single asset class."

That's a big win – being able to combine trades such as a Currency Swap with the underlying FX trades which affect the notional and exchanges, either as hedges or adjustments. This nugget was spotted by Nikki S. Rasmussen of Danske Bank – well done and thanks. Also interesting is footnote 16:

"Inflation swaps, which transfer inflation risk between counterparties, may be considered as part of the currency/rates asset class for the purpose of computing model-based initial margin requirements, and as part of the interest rate asset class for the purposes of computing standardised initial margin requirements."

 


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