Margin rule mismatch spawns new VM funding cost for buy side

Settlement timing difference penalises back-to-back trades with US and EU banks

US rules require entities to post and receive collateral the day after a trade is executed, but Europe allows the physical exchange to occur on T+2

Buy-side derivatives users are facing a new funding cost generated by a settlement timing mismatch under the new derivatives margin rules.

For buy-side firms posting securities as variation margin for non-cleared derivatives trades, the US rules require covered entities to post and receive collateral the day after a trade is executed, known as T+1. However, the European rules allow the physical exchange to occur on T+2.

This means if a buy-side firm has back-to-back trades with a US and Europe