Initial margin held by top CCPs declined over Q2

Initial margin (IM) held by top central counterparties (CCPs) fell back from the high watermarks hit at end-March over the second quarter, with holdings of cash collateral dropping the fastest.

IM held by the 10 large CCPs tracked by Risk Quantum hit $1.25 trillion at the end of the first quarter. Three months later, though, the total was down 10% at $1.12 trillion.

IM held in cash at central bank accounts amounted to $215.7 billion at end-June, down 23% from $279.2 billion three months prior.

 

Cash collateral held at central banks fell the most at CME, Eurex and the Depository Trust & Clearing Corporation (DTCC) quarter on quarter. However, the Japan Securities Clearing Corporation saw amounts held at the Bank of Japan increase 18% over the quarter to ¥3.36 trillion ($31.8 trillion).

The 10 CCPs also saw $31 billion of IM held as cash parked at commercial banks leave over Q2, reducing the total 20% from the $157.1 billion reported at end-March.

Five CCPs disclosed increases, and five decreases, in domestic sovereign bond IM over Q2. The Options Clearing Corporation saw these amounts fall the most quarter on quarter, by 43% to $13.2 billion. Domestic sovereign bond IM increased most at Ice Clear US, by one-third to $21 billion.

IM held in equities dropped around $11 billion (-12%) over Q2. On the flip side, the 10 CCPs held $7.7 billion more (+357%) of IM in mutual funds at end-June than they did three months prior.

What is it?

CCPs subscribing to disclosure rules set by international standard-setters the Committee on Payments and Market Infrastructures and the International Organization of Securities Commissions (Iosco) must disclose their end-quarter initial margin amounts, separated by house and client accounts and by clearing service. They must also describe in what form this margin is held in.

Data used in the above charts reflect total IM required, post-haircut, aggregated across all clearing services for each CCP. These data can be found in data fields 6.2.1 to 6.2.15 of the relevant CPMI-Iosco disclosures.

DTCC counts clearing members’ prefunded default fund contributions and IM as one and the same. Therefore the IM numbers for DTCC are derived from the relevant default fund disclosures, data fields 4.3.1 to 4.3.14. In addition, these numbers reflect actual margin posted, rather than just the required amounts.

Why it matters

Derivatives trading volumes normalised after the coronavirus-fuelled chaos of March and April, as did the volatility of rates, credits and equities.

This led CCPs’ margin models to spit out lower margin requirements for clearing members than at the height of the crisis, which explains the lower overall amount of IM held at top clearing houses at end-June compared to three months earlier. The sharp drop in cash collateral suggests that IM was returned to members direct from CCPs’ accounts at central banks and commercial lenders.

Still, IM levels at end-June remained way above pre-pandemic levels. This may represent a ‘new normal’, as CCP margin models have now factored in the extraordinary movements witnessed at the height of the crisis into their calculations. 

What doesn’t appear to have been a permanent change, though, is the greater allocation of IM to cash. When markets turned squirrelly at end-March, it made sense for CCPs to shy away from investing IM in equities or mutual funds. Now some firms appear to be once again allocating received amounts into risk assets.

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Tell me more

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Eurex initial margin ebbed over Q2 as default fund swelled

JSCC placed majority of its default funds with the BoJ in Q2

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• Topics
• CCP
• Clearing
• Clearing members
• CME Group
• Collateral
• Committee on Payments and Market Infrastructure (CPMI)
• Depository Trust & Clearing Corporation (DTCC)
• Eurex Clearing
• Europe
• Ice Clear Credit
• Ice Clear Europe
• Initial margin
• International Organization of Securities Commissions (Iosco)
• Japan
• Japan Securities Clearing Corporation (JSCC)
• LCH
• Margin
• Margin call
• Margin risk
• Options Clearing Corporation (OCC)
• Sovereign bonds
• United Kingdom (UK)
• United States (US)
• Risk Quantum
• CCPs
• Ice Clear US