NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Measuring Margin

Robert L. McDonald

Chapter in NBER book Risk Topography: Systemic Risk and Macro Modeling (2014), Markus K. Brunnermeier and Arvind Krishnamurthy, editors (p. 65 - 82)
Conference held April 28, 2011
Published in August 2014 by University of Chicago Press
© 2014 by the National Bureau of Economic Research

Policy makers and market participants alike wish to understand the amount, economic significance, and concentration of derivatives trading activity. This paper suggests that systematic measuring and reporting of margin by market participants, disaggregated by asset class, would provide more meaningful insights into derivatives activity. Where margin is not required, it could nevertheless be imputed and reported. The Dodd-Frank financial reform bill, by contrast, moves away from transparency by granting non-financial firms an end-user exemption from posting initial margin on their trades. This is economically equivalent to a borrowing from the counterparty and effectively permits these firms to issue off-balance-sheet debt.

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This chapter first appeared as NBER working paper w18724, Measuring Margin, Robert L. McDonald
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