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.
Glossar
Prime Brokerage
Collateral ⎊ Prime brokerage within cryptocurrency and derivatives markets functions as a centralized service managing pre-trade risk checks, execution, clearing, and settlement for institutional investors and hedge funds engaging in complex trading strategies.
Netting Exposures
Mechanism ⎊ Netting Exposures is a critical risk management mechanism that consolidates multiple bilateral obligations between two counterparties into a single, net payment or delivery obligation.