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Abstract
The mandatory clearing requirement of the Dodd-Frank Act, clients will have to clear a large proportion of their over-the-counter derivatives transactions. Yet not all derivatives are available to be cleared and many commonly used, but customised, derivatives may never be listed for clearing at all. Many clients, particularly hedge funds, currently avail themselves of portfolio margining benefits, recognising significant economic savings. However, a new proposal from the Commodity Futures Trading Commission may prevent clients from cross-margining cleared swaps and uncleared positions. For bank capital calculations, Basel II allows banks to take netting across asset classes into account when transactions fall under a legally enforceable netting agreement. Having the flexibility to avail themselves of portfolio margining benefits, in a risk-controlled and legally enforceable manner, will be a critical part of the equation.