margin efficiency and attribution

Do you need Margin Attribution? 
Perhaps the answer is “How can you manage your business without it?”

The return on a portfolio needs to take into account the indirect costs from margin, fees and funding.  By attributing margin back to entities, portfolios and down to individual trades a true picture of returns is achieved.

Once this true return on a portfolio is understood, further steps can be taken to reduce IM through compress, porting and collateral optimization.

How does your firm relate risk taking with indirect costs?

With Cassini you can:

Find out how is IM being driven by entities, portfolios or individual trades

Find out how is IM moving on a day-to-day basis

Find out how is margin split between Base IM, CCP add-ons or Broker add-ons

drill down and analyze

Enabling your teams to navigate the complexity of portfolios and margin will open up an insight into the indirect economics of your business. Analyzing or aggregating margin costs needs to be flexible in structure. 

You decide how your trades are structured and then discover the amount of margin supporting those positions.

The Cassini dashboard can show:

Your IM per entity, or down to trade level

IM consumption by strategy

The day-to-day IM move due to trading activity or risk changes

Tracking of IM consumption against limits with alerts

find out how to align costs

margin attribution models

With any approach to margin, deciding how trades contribute to total legal entity IM needs careful thought. Trades offset each other when grouped in strategies or portfolios.  

The way in which your organization is structured may have an effect on margin – a portfolio needs to carry the underlying cost of margin even if it happens to be offset by other trades.

The Marginal Approach

This method derives portfolio margin by calculating the effect of removing a selected portfolio and calculating the change in IM. By subtracting the portfolio, you see the effect of adding the portfolio back into the overall legal agreement IM.

This method determines the amount of margin the portfolio brings to the overall legal agreement. It allows for offsets between the chosen portfolio and the whole legal entity agreement IM.

The Pro-rating Approach

This method comes from another direction and calculates the IM for each portfolio on a standalone basis, then attributes the margin as a ratio of each portfolio contribution to the whole.

Compared to the Marginal approach, this ignores offsets between portfolios, as they are calculated individually and treats each portfolio separately as if they were their own businesses.

which method fits your business?

WANT TO FIND OUT HOW margin attribution benefits YOU?

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See our software in action. Ask for a demo and we can explain how to get going with the Cassini services.

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