The buyside can now better manage its portfolio’s risk, while gaining access to greater leverage.
Mirae Asset Securities (USA) Inc. (“Mirae”) is now offering its new Portfolio Margin Product (“PM”) to qualified, sophisticated traders with hedged portfolios to help them benefit from lower capital requirements and greater leverage. It will also assist such clients helping to limit investment losses when using portfolio margin platforms.
According to Jay Patel, Executive Director of Credit & Risk Management at Mirae, PM is a risk-based methodology used to compute risk on eligible stock and option margin requirements for institutional accounts. PM requirements are based on theoretical loss on a broader portfolio — instead of on fixed percentages for individual positions, as required by traditional Regulation T margin requirements (“Reg T”).
Reg T is a set of provisions governing investors’ cash accounts and the amount of credit that brokerage firms and dealers may lend to customers for the purchase additional securities. Reg T also governs how an investor buys on margin by using funds borrowed from a broker using other securities as collateral. Specifically, for a margin purchase, Reg T permits margin investors to borrow no more than 50% of the price of shares. This is intended to limit market volatility in addition to possible investor losses.
According to Mr. Patel, “Portfolio Margin is calculated by using theoretical option pricing models to determine potential real-time losses at various price points for each position” adding that “the maximum expected single day loss from these price moves are then aggregated to determine the overall margin requirements for the portfolio.”
PM also allows an investor to have improved transparency and alignment between applicable margin requirements and overall risk within the portfolio. This will often result in lower margin requirements than the standard requirements imposed upon a Reg T margin account.
“For those hedge fund customers who seek greater than Reg T leverage, this is a tool that can help them generate additional alpha while enabling them to better manage their risk”, said Robert Akeson, Co-Head of Prime Brokerage at Mirae Asset Securities. He added that, “we are excited to offer this additional capability to hedge funds and are working on other ways to extend the benefits of the Mirae franchise to them, such as accessing Korean sources of investment capital”.
Mirae, the North American division of Korea-based Mirae Asset Financial Group, offers a wide range of offerings to the buy side, including prime brokerage, securities lending, repo, agency execution, outsourced trading and correspondent clearing. The Mirae family of companies currently operates in 14 country markets, including South Korea, United States, Australia, Brazil, Canada, China, Colombia, Hong Kong, India, Indonesia, Mongolia, Singapore, the U.K. and Vietnam.