What Role Does Collateral Management Play in a Prime Broker's Derivatives Services? ▴ Learn

What Role Does Collateral Management Play in a Prime Broker’s Derivatives Services?

Collateral management is crucial for mitigating credit risk in derivatives transactions. The prime broker requires clients to post collateral (cash or securities) to cover potential future losses on their positions.

The broker then monitors the value of the positions and the collateral daily, initiating margin calls if the collateral falls below the required maintenance level. This ensures the broker is protected from client losses.

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