BOE Warns Margin Call Model May Underestimate Hedge Fund Risk
- Some funds may need to post more collateral, regulator says
- ISDA defends its model and says will engage with UK’s PRA
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Banks may not be demanding enough collateral from hedge funds to satisfy new margin rules that are set to go live in September, a UK regulator said.
The Bank of England’s Prudential Regulation Authority, or PRA, has told banks that a widely-used model to calculate margin requirements doesn’t appear to accurately reflect the risk some funds face in unlisted securities trades. The warning comes just months before hundreds of hedge funds and other firms come under the scope of rules expected to drive up costs in the $12.4 trillion derivatives market.