Netting Potential

1. Netting allows to match opposite positions and significantly reduce collateral requirements.

2. Collateral requirement reduction drops the cost of funding / overnight fees.

3. Netting allows hedgers to not have to hedge, saving cost of hedging which represents 90% of operations cost.

4. Reducing costs heavily allows for making products that were not possible due to high funding costs due to high hedging costs.

PIO Implementation:

1. A netting contract is agreed between 3 parties, in a similar way as a usual bilateral contract. On a CCP, only 2 parties need to be matched and agree between each other.

2. In case of the default of one of the netting parties, the position needs to be replaced to avoid non-defaulting parties having to find a hedge quickly. Hence the utilization of CCP.

3. Netting without CCP is risky due to defaulting risk of bilateral trades.

4. For this kind of operation, we take the assumption that all parties are equipped with bots handling netting automatically.

5. If a party doesn't run PIO's bot or their own, we estimate that the earnings from Netting are not significant.

6. IM optimization and Netting cannot co-occur on the same contract.