Leverage ratio squeeze hits options trades

With clearing banks constrained by leverage limits, prop traders fear options market lockdown

Derivatives clearing, bank leverage, and options trades make a potent concoction. Add in the volatility caused by the coronavirus pandemic, shake well, and the result is a cocktail that would give most market-makers a nasty headache.

Proprietary traders are complaining that the leverage ratio is forcing clearing banks to turn down options business, crimping trade volumes and threatening the orderly functioning of markets.

“This isn’t healthy for anyone to have a constraint on our effectiveness