Loan danger: CFTC sees systemic risk in margin financing
Combined with EU net CCP margin rules, bank-issued margin loans could pose systemic risk
If you want to gamble at the casino, you first have to buy your chips with real cash. In the world of derivatives clearing, initial margin (IM) is the cash with which you buy your chips, and the central counterparty (CCP) is supposed to play the role of the casino safe.
But what if the gambler busts out, and when the casino manager opens the safe they find it empty? That's a very rough approximation of the increasing anxiety among US regulators towards a practice called margin financing.
In a
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