# Banks turn to synthetic derivatives to cut initial margin

## Options-based instruments can halve initial margin for some non-cleared products, say dealers

At least two dealers have turned to so-called synthetic derivatives to reduce the initial margin (IM) required for their interest rate and foreign exchange portfolios, with estimated margin savings of up to 50% on some positions.

New margin rules require large dealers to post initial margin against new non-cleared derivatives positions. This has created a problem for the trading of instruments such as swaptions, which are non-cleared but hedged with cleared swaps.

Under the industry’s agreed s

#### 7 days in 60 seconds

###### Basel floors, cyber risk and the Quant Finance Master's Guide

The week on Risk.net, June 16–22, 2017