The International Swaps and Derivatives Association (ISDA) has quantified the growth of posted margin for non-cleared derivatives in its latest market survey, with volumes increasing sharply in line with the later phases regulation.
The ISDA Margin Survey analyses the amount and type of initial margin (IM) and variation margin (VM) for entities captured under each phase of the Uncleared Margin Rules last year, compared to 2019.
For non-cleared derivatives, ISDA surveyed 20 firms with the largest derivatives exposures.
These firms were subject to the first phase of the new margining regulations for non-cleared derivatives in the US, Canada and Japan from September 2016, and in Europe from February 2017.
The trade body also surveyed phase-two and phase-three firms that were subject to the IM requirements from September 2017 and September 2018, respectively. Responses were received from all six phase-two entities and six of the eight phase-three firms subject to the margin rules.
Unsurprisingly, the amount of regulatory IM has continued to increase as margin rules for non-cleared derivatives have been phased in and more firms and new transactions are subject to the requirements.
The association attributes the increase in regulatory IM to the new non-cleared derivatives transactions executed by entities captured by phases one to four.
ISDA says it expects regulatory IM to continue increasing as phase-five and phase-six firms become subject to the IM requirements starting in September 2021 and September 2022, respectively.
The survey finds that the 20 largest market participants (phase-one firms) collected
approximately $207.3 billion of IM for their non-cleared derivatives transactions at year-end
2020.
Of this amount, $129.2 billion was collected from counterparties currently in scope
of the regulatory IM requirements.
A further $78.1 billion of non-regulatory IM, known as independent amount (IA), was collected from counterparties and/or for transactions that are not in-scope of the non-cleared margin rules, including legacy transactions.
IA reflects IM posted and collected under collateral agreements with counterparties not currently in scope of the margin rules. It also captures IM posted for transactions that are not covered by the margin rules, including legacy transactions.
Phase one firms
The survey finds that 32 firms – including 20 phase-one entities, all six phase-two firms and six of the eight phase-three firms that are subject to the margin rules – collected about $217.8 billion of IM and $1.3 trillion of VM at year-end 2020.
IM collected by phase-one firms for their non-cleared derivatives transactions totalled $207.3 billion at year-end 2020. This represents a 19.7 per cent increase compared with $173.2 billion of IM that phase-one firms collected at year-end 2019.
Of the IM collected by phase-one firms, $129.2 billion was required under global margin regulations, representing an increase of 22.8 per cent compared to $105.2 billion of regulatory IM collected at year-end 2019.
VM collected by phase-one firms for non-cleared derivatives increased by 29.8 per cent to $1.2 trillion at year-end 2020 compared to $897.3 billion collected at year-end 2019.
VM required under global margin regulations and collected by phase-one firms was reported at $638.5 billion, a 44.6 per cent increase compared to $441.5 billion of regulatory VM collected at year-end 2019.
Later phases
Meanwhile, 12 other firms – all six phase-two firms and six of the eight phase-three entities that participated in the survey this year – collected $10.6 billion of IM at year-end 2020, including $7.4 billion of regulatory IM and $3.1 billion of IA.
These entities also collected $10.6 billion of IM at year-end 2020, including $7.4 billion of regulatory IM and $3.1 billion of IA.
