Electronic Market Microstructure

Some firms are starting programs that offer hedge fund managers and certain other client’s portfolio margining for broad-based index options and corresponding Exchange Traded Funds (ETFs). This is a big move in hedge fund electronic technology and a bigger move for the business as it will free up capital for the funds.

Through freeing up capital for the hedge funds, non-US broker/dealer proprietary accounts and private clients, portfolio margining can bring additional liquidity to already booming equity options markets and will eventfully lead to a cross-product platform that truly leverages economic advantages across the asset classes.

A letter to the SEC applauding the New York Stock Exchange (NYSE) and Chicago Board Options Exchange (CBOE) proposals to permit cross margining of futures, securities and other instruments on a portfolio basis was sent.

As other markets permit the cross margining of their assets the more capital will be freed up within the industry. Equally important the electronic implementation of the cross margining of the portfolios will improve the over all risk management of the funds.