Questions and answers

What is OTC margin?

What is OTC margin?

Financial Terms By: o. OTC margin stock. Shares traded over-the-counter that can be used as margin securities under Regulation T.

What is initial margin for OTC derivatives?

Initial margin (IM) is collateral collected and/or posted to reduce future exposure to a given counterparty as a result of non-cleared derivative activity. Whilst there is a recognised process within exchange traded and cleared derivatives, this is largely a new process for non-centrally cleared OTC derivatives.

What is variation margin in OTC derivatives?

The variation margin is a variable margin payment made by clearing members, such as a futures broker, to their respective clearing houses based on adverse price movements of the futures contracts these members hold.

What are OTC cleared derivatives?

OTC clearing refers to a process under which standardized derivative contracts which relate to over-the-counter transactions will be cleared through an agency established by a stock or commodities exchange.

Can you margin OTC stocks?

Non-marginable securities are not allowed to be purchased on margin at a particular brokerage, or financial institution, and must be fully funded by the investor’s cash. The downside of marginable securities is that they can lead to margin calls, which in turn cause the liquidation of securities and financial loss.

Who pays the initial margin?

The initial margin represents the percentage of the purchase price that must be covered by the investor’s own money and is usually at least 50% of the needed funds for U.S. stocks.

How do you calculate initial margin?

Calculate Your Initial Margin Requirement. Multiply the price per share by the number of shares you want to buy to find the total purchase price. Multiply the purchase price by the initial margin requirement percentage. Suppose you want to buy 500 shares of a stock at $40 per share.

What is an example of buying on margin?

How Does Buying on Margin Work? You want to buy 1,000 shares of Company XYZ for $5 per share but don’t have the necessary $5,000 — you only have $2,500. If you buy the shares on margin, you essentially borrow the other half of the money from the brokerage firm and collateralize the loan with the Company XYZ shares.

How is variation margin used in the OTC market?

Unlike initial margin, variation margin has been a risk-mitigation technique used by the OTC derivatives market since its inception. Through the work of ISDA, the market has established common standards for legal documentation and dispute resolution in the form of the ISDA Master Agreement and its various annexes.

Who is the OTC Markets Group, Inc.?

OTC Markets Group, Inc. engages in the provision of trading, corporate, and market data services. It operates through the following business lines: OTC Link LLC, market data licensing, and corporate services. The company was founded in 1904 and is headquartered in New York, NY.

How big is the non-cleared OTC derivatives market?

As of the end of 2013, the size of the non-cleared segment of the interest rate derivatives market alone was approximately $123-$141 trillion.2The new margining regulations for the non-cleared OTC derivatives are the main subject of this report. Their purpose is to reduce systemic risk across financial markets.

When do you need to do a marginal analysis?

When a manufacturer wishes to expand its operations, either by adding new product lines or increasing the volume of goods produced from the current product line, a marginal analysis of the costs and benefits is necessary.