European foreign exchange prime brokers (FXPBs) have been able to lure hedge fund clients away from US rivals by offering more favourable initial margin requirements for FX options trades.
The globally agreed non-cleared margin rules require firms using FX options to post initial margin on the trades, but deliverable FX forwards – a common delta hedge for options – are exempted. This means both dealers and clients are unable to offset the resulting risk exposures against each other, leaving a
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