Bring Opposing Views Together. Monetise the Difference.
A new way for funds to optimise outcomes through short-term, credit-backed synthetic exposures.
The Netting Advantage, Returned to You.
Prime brokers extract full economic value from opposing flows — without passing netting benefits back to clients.
MarginNet changes that.
In years gone by, funds were smaller and tolerated inefficiency as a cost of doing business. But the landscape has shifted.
Today’s institutional players are larger, smarter, and more aligned across strategies. When one fund is long and another is short, the risk nets — and the benefit should too.
MarginNet provides a neutral, credit-backed layer where offsetting exposures can meet directly — with performance, pricing, and transparency returned to where it belongs: the client.
Our Mission
MarginNet’s mission is to bring precision and performance to synthetic flow.
By netting opposing exposures ahead of market execution and event-driven periods, we reduce friction, optimise margin usage, and return economic value to the participants — not the intermediaries.
We have filed a patent covering the mechanism by which we create unique counterparty risk portfolios and externalise the contingent variation margin shortfall risk to a third-party guarantor.
Built for Precision. Backed by Principles.
Aligned
We never compete with our clients. MarginNet is not a trading desk, hedge fund, or market participant. We are a neutral infrastructure layer enabling funds to safely match offsetting exposures — without execution conflicts or custody risks.
Purpose-Built
One facility. One purpose.
MarginNet is purpose-built to manage short-term, credit-backed net exposure between funds with opposing positions.
Simple by Design
Simplicity enables scale and safety. The MarginNet model is deliberately lean: standardised short-term contracts, broker-verified participation, and pre-funded margin. No hidden layers, no recursive trades.
Secured
Credit risk is neutralised through capital-backed contracts. Each matched position is margin-funded on both sides and cleared through a broker-orchestrated credit agreement. The credit pool is transparently governed, and can optionally include third-party default insurance or clearing agents.
Who's It For
MarginNet is built for institutional participants who need clean, fixed-term access to stocks over short dated periods.
Including Cayman-domiciled and other offshore vehicles seeking fixed-term exposure to stocks over short periods — with economically adjusted exposure pricing, delivered more efficiently than legacy prime brokers who widen spreads through structural baggage and misaligned incentives.
Offering limited-purpose guarantees against margin shortfalls — structured to be significantly more capital-efficient than holding traditional swap exposures directly.
Brokers operating in an agency capacity to match institutional clients with opposing views. Instead of routing trades to a prime broker, trades are given up to MarginNet, which acts as the principal credit intermediary.
Why Prime Brokers Don’t Share the Benefit
Regulatory capital frameworks like CEM, IMM, and SA-CCR require prime brokers (European) to hold capital against each side of a matched trade — even when the exposures are economically offset.
This leads to inflated capital charges that do not reflect the true risk, where in most cases, only a single counterparty default would drive actual loss.
To justify the capital they are forced to allocate, PBs apply spreads to both legs — retaining the full economic benefit of netting rather than passing it back to clients.
MarginNet changes this by introducing a neutral, credit-backed intermediary. This unlocks capital efficiency, enables cleaner netting, and returns the performance benefit to institutional participants.
To understand this let’s consider a simplified net trade example:
Two hedge funds each take a $100m position in the same stock — one long, one short.
The market risk nets. But the counterparty credit risk doesn’t.
Under regulatory capital rules, the prime broker must treat each exposure separately, holding capital as if both clients could default independently — even though the economic exposure is fully offset.
Initial Margin Not Recognised
Under SA-CCR and other frameworks, margin posted by clients is not always eligible to reduce EAD (Exposure At Default) for capital purposes — especially when held independently.
PBs are forced to over-capitalise even risk-neutral flows.
| Metric | Value | Comment |
|---|---|---|
| Notional Size (Each Leg) | $100 million | Fund A long, Fund B short |
| Market Exposure (Net) | $0 | Long and short positions offset |
| Initial Margin (Posted) | $10m per fund | Held independently by PB ($20m Total held) |
| Stressed Market Move | 5% | Estimated 2-day close-out risk (~20% annualised Volatility) |
| Potential Loss (1-leg default) | ~$5 million | Exposure assuming one fund defaults |
A simplified overview shows that either a Prime Broker or MarginNet will act as the credit intermediary between two perfectly offsetting clients.
Fund A pays interest plus spread
Fund B receives interest minus spread
For simplicity, let’s assume the spread is 30bps to both sides and use a fixed holding period of 3 days.
P&L = $5k ($200m × 0.003 × 3/360)
Depending on the prime broker’s size and regulatory model, capital requirements can vary materially.
A large universal bank might apply SA-CCR with internal offsets, while a mid-tier PB may use flat capital add-ons of 1.5%–1.65% per leg — leading to $3m+ in capital charges for a simple $100m two-way matched exposure.
Crucially, these capital charges apply even when both clients are fully margined, and the economic risk is neutral.
For the sake of simplicity, let’s assume a capital requirement range between $3.3m and $8m. This would represent an annualised return on capital (RoRC) of between 7.5% and 18.1%. To meet the bank’s internal RoRC hurdle — often 12–15% or higher — the prime brokerage division is forced to widen spreads on both sides of the trade, even when the underlying risk is minimal.
When we consider the actual risk, a default by one party would require the underlying security to drop more than 10% over a 2-day period before the intermediary would incur a loss.
Clearly, some risk exists — and this is why capital is required — but the risk is often overstated relative to the actual exposure.
Additionally, we should note that the regulatory capital would typically generate a return on its own, as it would usually be held in short-dated Treasuries or equivalent. This forms part of the overall Return on Equity (RoE) calculations, but is not directly tied to the economics of the trade itself.
Jurisdictional Capital Distortion
Under current regulatory frameworks, U.S. prime brokers are generally subject to less stringent capital requirements than their European counterparts — even for equivalent economic exposures.
This disparity arises from differences in how Basel III has been implemented across jurisdictions, particularly regarding treatment of initial margin and internal risk models.
While it may appear obvious that U.S. prime brokers should route client trades through their U.S. entities to benefit from more favourable capital treatment, this is often not the case.
For a variety of operational, regulatory, and commercial reasons, many trades continue to be booked through European (or UK) affiliates — despite the significantly higher capital impact.
Is There A Better Capital Structure
Yes — by isolating the real risk and assigning capital more precisely.
In the MarginNet model, both clients post margin to a neutral tri-party agent. Rather than duplicating capital across both sides, a regulated credit guarantor steps in to cover any shortfall in variation margin following a counterparty default.
This is the core capital breakthrough.
When both funds post margin, the only true exposure is the variation margin shortfall after a default.
A regulated credit guarantor steps in to cover this tail risk — and must hold capital against it.
In an extreme stress scenario (e.g. a 10–20% market move after margin is exhausted), the guarantor’s maximum exposure on a $100m trade might be $10–20 million.
Under Basel rules (8% capital requirement on Exposure at Default), this results in:
Capital = 8% × $10m = $800,000
Capital = 8% × $20m = $1.6 million
In contrast, a traditional prime broker (European) with no guarantee structure might hold $3.3m to $8m against the same trade, across both legs. This means the guarantor’s return on regulatory capital (RoRC) can be more than double that of the prime broker — with better alignment to the actual risk.
Clearly, an institution not subject to regulatory capital constraints — such as a sovereign wealth fund or large pension scheme — may also find this structure attractive. With no regulatory burden, such entities could price tail risk more flexibly and allocate capital according to their own internal models, potentially achieving superior returns relative to actual exposure.
Our Credit Facility
MarginNet acts as principal to both counterparties in each matched trade, ensuring anonymity and execution integrity.
While trades are legally bilateral with MarginNet, all economic risk is neutralised at inception, fully margin-secured, and protected by a dedicated third-party credit guarantee — enabling capital-efficient execution without regulatory intermediation.
When a matched trade is executed through MarginNet, both funds post margin to segregated accounts via a tri-party agent. If either fund fails to meet its variation margin call, a default is declared and the guarantee activates to cover any shortfall.
Trade matched
Margin posted
Market moves
Variation margin required
Counterparty fails to meet margin call
Default triggered
Credit guarantor steps in to cover shortfall
MarginNet + surviving fund protected
MarginNet is not a fund, not a clearing house, and not a broker-dealer. Participation is limited to institutional counterparties and approved facilitators.
Ready To Explore a Strategic Collaboration?
We’re seeking aligned institutions, strategic investors, and credit guarantors interested in shaping the future of institutional netting.
If that resonates, we’d welcome a conversation.