Use of collateral in privately negotiated derivatives transactions grew significantly in 2008, with the amount of collateral in circulation now estimated at $4.0 trillion. The International Swaps and Derivatives Association (ISDA) today released results from its 2009 ISDA Margin Survey at its 24th Annual General Meeting in Beijing.
The results show an increase of almost 86 percent over the estimated $2.1 trillion of collateral in the 2008 Survey. Cash continues to grow in importance among most firms, and now stands at over 84 percent of collateral received and 83 percent of collateral delivered.
“Recent market events underscore the importance of collateralization as a risk mitigation tool," said Robert Pickel, executive director and chief executive officer, ISDA. "ISDA’s 2009 Margin Survey indicates that, amidst the volatility in the financial markets, collateral management programs continue to expand, covering increased trade volumes and credit exposures."
The 2009 Survey reports that collateral agreements in place now number over 150,000. Among firms that responded both in 2008 and 2009, collateral agreements grew by nine percent. Respondents forecast further growth of 26 percent during 2009. This reflects a long-term trend toward increased collateral coverage.
Additionally more than half of the respondents stated that they engage in some form of systematic portfolio reconciliation, many on a daily basis. Portfolio reconciliation is the process by which market participants verify the existence and salient details of outstanding trades.
Of the 67 firms responding to the 2009 ISDA Margin Survey, 58 are banks or broker-dealers, and the remaining are institutional investors and other end users.