Uncleared swaps and higher initial margin; can a margin clearing mechanism reduce the pain? | Securities Finance Monitor
Commentary by SFM on a piece in IFR about the idea of processing OTC products in a non-CCP centralised platform with net margin.
If there is a way to net margin requirement outside of a CCP environment, it could take a lot of pressure off. There are lots of unanswered questions. How are prices determined to mark the derivatives to market, which then flow down to margin surplus or deficit? If these were easily available / transparent prices, wouldn’t the derivatives probably be cleared? How would liquidation work in a default environment? Who gets what & when is hard enough in a CCP – but a margin clearing house, presumably without guaranty funds and risk waterfalls will be very tricky.