The Legal Aspects of Portfolio Margining: A Move Toward the LSOC Model

This Article focuses on the legal aspects of “portfolio margining” in the United States and their potential for reducing costs and facilitating the management of collateral for the participants involved. First, this Article outlines the level of protection that customer “margin” deposits receive in clearing systems using a Central Counterparty (CCP). Second, it explains the process of portfolio margining from a legal perspective and discusses the benefits of adopting these arrangements. Thirdly, it argues that adopting the “Legal Segregation and Operationally Commingled Model” (LSOC Model) in the futures industry can facilitate the implementation of portfolio margining. Finally, the conclusion explains how to implement the recommended changes