Some banks find huge margin savings by breaking up indexes
Splitting equity and commodity indexes can halve initial margin, but not everyone can do it
With the largest dealers now required to post initial margin on non-cleared derivatives trades, the hunt is on for ways to optimise the amount of collateral they post.
An effective – but complex – method that is gaining traction sees banks split an equity or commodity index into its constituent parts for the purposes of the margin calculation, which allows for greater netting and can reduce initial margin requirements for the positions by nearly half in some cases.
“If you don’t decompose the
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