New European Union regulations on foreign exchange trading turns out to be harder and more expensive to manage currency risk especially for large financial counter parties such as hedge funds and insurance companies.
It shall impose “variation margins” on banks, companies and funds that use currency forwards and other derivatives to hedge exposure to currency swings which means they will need to put up cash to back their trades every day.
“The idea behind this is to prevent the next Lehman Brothers and AIGs of the world,” said Phung Pham at Baker & McKenzie’s London derivatives practice.
