Crossing boundaries

Prime brokers are expanding cross-margining facilities to include ever-more exotic products as a means of reducing margin for hedge fund clients. Dealers say the reductions are justified from a risk management perspective, but regulators continue to have misgivings. By John Ferry

Regulators in the US have issued a string of warnings over the past year about the dangers of prime brokers over-aggressively slicing margin requirements for their hedge fund clients. In March, Annette Nazareth, a commissioner at the US Securities and Exchange Commission (SEC), said there was a need for adequate margin requirements to withstand periods of systematic stress. Then, in May, Timothy Geithner, president of the Federal Reserve Bank of New York, called for major dealers to take a "cold