• Melissa van der Merwe

Uncleared Initial Margin Statistics

Source: ISDA® Quarterly Vol 6, Issue 2: May 2020 (pages 36 to 39)

The figures from ISDA®'s latest margin survey gives an interesting insight into the statistics for initial margin (IM).

The first four phases of initial margin implementation have now been completed meaning that a total of over 50 firms are currently in scope for IM. The 20 dealer firms that were in scope in the first phase of the IM regulations collected $173.2 billion of IM at the end of 2019. This was $15.3 billion more than was collected by them in the previous year. If you include the amount of variation margin (VM) collected by these top 20 firms in 2019, the total margin collected at the end of 2019 was $1.07 trillion. The growth in regulatory IM from 2018 to 2019 is likely as a result of:

(1) the increased number of new non-cleared derivatives transactions executed by phase-one, phase-two and phase-three entities; and

(2) an increased number of phase-four firms coming into scope for IM regulations in September 2019.

The last two phases of the IM regulations will bring into scope a further 1089 firms in September 2021 and September 2022 (following Basel Committee on Banking Supervision, or BCBS, and the International Organization of Securities Commissions, or IOSCO, extension by one year to the phase-in dates in light of the COVID-19 pandemic).

ISDA®'s margin survey shows that phase-one entities tend to primarily post government securities as initial margin collateral. The regulations stipulate that IM has to be remote from any bankruptcy, and the use of government bonds supports this as it is easier to segregate securities as opposed to cash. Phase-one firms disclosed that of the IM they collected, 83.9% was comprised of government securities and 16.1% of other securities at the end of 2019.

On the other hand the survey shows that in terms of variation margin, cash is the preferred asset type to be posted as collateral. (Regulatory VM was comprised of 82.6% in cash, while government securities and other securities contributed 14.3% and 3.1%, respectively.)

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