Margin Call in Revenue Netting Scenarios

Informative

Greater operational efficiency for investors and brokerage houses

Currently, when an investor simultaneously lends and borrows the same asset and there is payment of revenues involved, a margin call is automatically generated, even if the lent and borrowed assets have the same price.

This situation is quite common for market participants who operate broker dealer accounts (brokerage houses).

In seeking a more effective solution for these cases, B3 is implementing an improvement that will eliminate or reduce these margin calls, ensuring that the amount borrowed is offset by the amount lent. With this, the call will only be generated for surpluses, thus reducing the brokerage houses’ operational efforts.

Project Tags:

Risk

Listed

In Progress

Securities Lending

Product benefits

Zero margin call

Or a lower margin call, generating a positive financial impact for participants operating investment accounts.

Operational efficiency

No margin will be required when the quantities of lent and borrowed assets are the same.

Optimization

Better use of funds without unnecessary collateral requirements.

Easy to use

For market participants, through a simpler and smoother process.

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New netting model offsets equal positions, reducing costs and maximizing collateral.

For example, if a participant holds 100 lent units and 150 borrowed units, the margin will be generated only on 50 net units. If the quantities of lent and borrowed assets are the same, no margin call occurs.

A netting agreement can be used for transactions entered into between two institutions. Its purpose is to reduce the risk of credit exposure of one party to the other. Through the agreement, upon settlement at the maturity of the transaction, the amount effectively owed by the debtor to the creditor is identified. Netting agreements are widely used not only in transactions involving derivatives, but also in other types of financial transactions.

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In cases where there are multiple transactions involving the payment of revenues - dividends or interest on equity, for example - on close dates, instead of settling each payment individually, the brokerage house can perform a netting transaction, i.e., it can offset the amounts due and receivable, consolidating everything into a single financial transaction.