Market clearing houses face a battle to regulate margin processes as volatility ramps up and machine trading increases
The WSJ has an interesting piece out on how the current volatility in markets is playing havoc with margin calculations.
The long and short of it is that volatile moves that lead margin increases can cause investors to pull out if costs for trading rise. This obviously reduces liquidity, which then can exuberate market moves by leading to forced liquidations. The increases in machine trading has also changed the landscape for clearing houses and how they approach setting margins.
It’s a good read to give some insight is how and why we are seeing more flash moves in markets, like Nat gas recently, and it also makes us aware of the issues that can affect our trading.
Read the story here (not gated).
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