Do security prices rise or fall when margins are raised?

• Autor(a) principal: Bottazzi, Jean-Marc
• Data de Publicação: 2017
• Outros Autores: Páscoa, Mário Rui, Ramírez, Guillermo
• Tipo de documento: Artigo
• Idioma: eng
• Título da fonte: Repositório Científico de Acesso Aberto de Portugal (Repositórios Cientìficos)
• Texto Completo: http://hdl.handle.net/10362/25470

When repo margins are raised by a central clearing counterparty (CCP), the impact on security prices depends on whether the market is `long' or `short'. As both the long and the short must post margins, the price impact depends on which side is more leveraged: traders long in the security or those short-selling it. If a raised margin forces more position unwind from the long than from the short, the price will go down to clear the market. However, if short positions are more hit then the long ones, a raised haircut leads to a higher security price!