Risk at the margin
Prime brokers are increasingly adopting a portfolio approach to calculating margin for hedge fund clients, taking into account any offsetting trades to reduce margin payments. But regulators have voiced concerns that some dealers are being too aggressive. By Jayne Jung
Hedge funds are a vital source of revenue for dealers. Within the increasingly competitive world of prime brokerage, one powerful way for firms to attract hedge fund business is to reduce margin requirements for clients. But that's easier said than done. Relax margin requirements too much and the bank could be at risk if markets fall and hedge fund counterparties collapse.
Prime brokers have
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