B3 launches Margin Simulator to provide greater efficiency to margin deposits based on real portfolios and avoid surplus collateral for transactions

Surveys carried out by B3 show that there is an excess margin deposit, namely, the difference between the amount of collateral required from clients and what is actually deposited. This difference can reach 40%, which is equivalent to almost BRL100 billion. Click here to view the updated amounts.

This occurs due to several factors, such as capital movement costs for nonresident investors, the complexity to implement the required collateral calculations and limited access to the B3 Clearinghouse by some market participants, like funds, managers and individuals. Furthermore, technological access to B3’s systems can often prove costly for some companies and most brokerage houses do not offer an alternative option to their customers' access to the systems.  

Another factor that contributes to this surplus collateral is the time zone where nonresident investors are based. When there is a mismatch between B3’s opening hours and local trading hours, investors need to estimate to ensure sufficient margin coverage for the following day and those estimates often end up being higher than necessary.

In seeking alternatives to help the market overcome these hindrances, B3 launched the Margin Simulator, a tool that enables quick, easy and direct access to one of the most robust risk management systems in the world – CORE (Close-Out Risk Evaluation).  

Integrated risk calculation

The Margin Simulator enables Brazilian and international asset managers, investment funds, financial institutions and service providers to simulate margin calls for their own portfolios or for their clients’ portfolios using CORE, a risk calculation system enhanced by B3.

CORE performs the integrated risk calculation of positions and collateral from multiple markets and asset classes. To start, the system uses 10,000 different risk scenarios to calculate the risk of closing a portfolio. For the sake of comparison, other major stock exchanges in the world cover only a few dozen risk scenarios.

In the first phase of the project launched in June 2019, B3 provided simulation for hypothetical portfolios. Since then, the Margin Simulator has evolved to meet market needs and now offers the possibility to simulate margins for real portfolios. The new Margin Simulator goes live on November 17^th, 2020.

“With the Margin Simulator, investors can have a clearer view of the scenario and gain precision when allocating funds,” explains Alexandre Jahnecke, head of Technology Products and Services at B3. "With the cutback in yield of government bonds, the strategy of allocating extra collateral is no longer interesting as these funds can be used in other transactions," said Jahnecke.

How it works

The Margin Simulator allows users to run simulations at any time during the CORE’s operating hours from 7:00 AM to 9:30 PM (BRT) on weekdays. Intraday positions are updated every 8 minutes to facilitate the entry of nonresident investors and investment funds.

The Margin Simulator can be accessed via API (Application Programming Interface) or through a Microsoft Excel plugin to speed up access to the service.

For further details about the functioning and key features of the Margin Simulator, click here. To learn more about the product’s Commercial Policy, click here. To find out more, talk to us at [email protected], or by telephone on +55 11 2565-5996.