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With respect, I beg to differ. There's nothing to stop a broker worried
about exposure to increase customer margins beyond what the exchanges
require - exchanges only set the MINIMUMS they'll accept, no ?
The whole point of probability-based systems like SPAN margining is to
prevent debits in 95%-99% of cases, and a competent risk management
department should be able to figure out what multiplier it needs over and
above the exchange-mandated minimums to achieve the desired
percentile. Perfection is impossible, but risk management isn't.
If a significant portion of a broker's customer base is sailing so close to
the wind that margin debits and resulting bad debts are anything like a
concern then I'd be worried about its financial stability, and that alone
would make me take my business elsewhere.
Regards,
Stefan
At 06:59 18/09/03 -0500, Jeff Gilfillan wrote:
The exchanges determine margins and are quite generous on that end (3-5%
on average per contract). Margins unfortunately do not prevent debits
nor can any risk management department.
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