Introduction

Leif Andersen and Michael Pykhtin

While it is now nearly a decade since the Great Recession of 2007–9, waves from the crisis and its aftermath continue to wash over the financial landscape. A number of wide-ranging regulatory initiatives aiming to solidify the balance sheets of financial institutions were implemented fairly quickly after the crisis, yet others have only started to affect the markets in earnest within the last few years. For instance, only in September 2016 was the first wave of new requirements for margin adequacy in over-the-counter (OTC) markets implemented, carrying with it significant changes in the way large financial institutions manage risk and operate their trading desks. As we were finalising this book, these new uncleared margin requirements (UMR), often referred to in the industry as the “uncleared margin rules”, were still in the process of being expanded to cover a wider array of institutions, effectively making the practice of OTC trading with very substantial, and possibly very costly, margin requirement near ubiquitous in the financial industry.

The increased regulatory requirements for margin posting were, of course, aimed at lowering the overall level of credit risk in the

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