Participants who trade fixed-income and interest rate derivatives, both listed and OTC, may be able to cut the total amount of initial margin they need to post to guarantee the fulfilment of their trades. This is the purpose as Eurex Clearing updates its cross margining algorithm to let more euro securities offset each others’ risks across types and maturities.

In a post on LinkedIn, the Deutsche Börse-owned clearing house has posted a one-minute video where Eurex’ head of fixed-income product R&D Lee Bartholomew carries its gospel. (And those who want to go twice as deep might prefer his two-minute video here.)

The algorithm is deployed to overcome the natural mismatch between the 2-day risk horizon on the trade of a listed fixed-income security versus the 5-day exposure on the OTC derivative, to produce a risk offset on portfolio level nevertheless. The update also opens for more long-term instruments to offset some risk on shorter-term ones.