What Is Cross-Margining and Why Is It Important in a Prime Brokerage Model?

Cross-margining allows a single pool of collateral to cover margin requirements across different asset classes or products (e.g. futures, options, swaps) and sometimes across different clearing houses. It is important because it significantly reduces the total margin required from a client, improving capital efficiency.

A prime broker facilitates this by netting exposures across various positions held by the client.