Lynn Strongin Dodds assesses the trends and changes highlighted in the latest ISDA margin survey
Initial (IM) and variation margin (VM) collected by leading derivatives market participants for their non-cleared derivatives exposures jumped by 6.4% to $1.5 trn at the end of 2024, according to the latest International Swaps and Derivatives Association (ISDA) annual margin survey.
The survey which polled 32 firms found that overall a total of $431.2 bn of IM was collected at the end of last year, largely unchanged from the $430.9 bn in 2023. Regulatory IM and independent amount (IA) firms participating in the survey collected $431.2 bn of IM for non-cleared derivatives transactions at the end of 2024, largely unchanged from $430.9 bn at year-end 2023.
Of the total, $354.3 bn or 82.2% of received IM was required under global margin regulations, a roughly 2.7% drop from the $364.1 bin in 2023. As for IA, the figure was $76.8 bn of IA grew 15.1% from $66.7 bn in 2023. As for VM, respondents gathered $1.0 trn, ,a 9.3% hike from the $939.9 bn in the prior year.
The respondents included 20 phase-one entities – the largest derivatives dealers subject to regulatory IM requirements that became subject to margin requirements in September 2016 in the US, Canada and Japan, and in February 2017 in Europe. It also comprised responses from five of the six phase-two firms and seven of the eight phase-three firms, which were brought into scope of the IM requirements in September 2017 and September 2018, respectively.
The survey also found that the composition of IM has significantly shifted since the trade group started the survey in 2017. Government securities remained the dominant form of collateral for most of the period, although its share fell significantly in 2024 to 54.5% from a high of 66.5% in 2018. By contrast, the share of other securities has steadily increased in recent years, from 18.4% in 2017 to a peak of 34.7% in 2024, marking a clear shift toward more diversified forms of non-cash collateral.
Moreover, the survey noted there are significant differences in the configuration of collateral for regulatory IM and IA. For example, government securities are preferred for meeting regulatory IM requirements because the margin rules stipulate that IM must be bankruptcy remote, which is much easier to implement using securities.
Digging deeper, regulatory IM compromised just 2.9% of cash, 62.9% of government securities and 34.2% of other securities at the end of 2024. By contrast, cash was more widely used for IA, accounting for 47% followed by 37% for other securities and 16% for government bonds.
As for VM, non-cleared derivatives, including regulatory VM and discretionary VM, saw a 9.3% rise to $1.0 trn at year-end 2024, slightly higher than the $939.9 bn gathered the year before.
Cash remained the predominant form, although its share declined for the fourth consecutive year from a peak of 80% in 2020 to 68.3% in 2024. Other securities expanded by 13.8%, while the government counterparts increased to 17.8%, continuing the trend of a higher proportion of VM being paid in non-cash collateral.
The survey also reports that $389.8 bn of required IM was posted by all markets participants to central counterparties (CCPs) for their cleared interest rate derivatives (IRD) and single-name and index credit default swap (CDS) transactions at the end of 2024. This represents a 0.6% dip on the $392.2 billion recorded at the end of 2023.
In terms of collateral, based on ISDA estimates, about 33% was received in cash, with the remainder comprising government bonds and other securities. CCPs do not disclose the amount of VM received but only accept cash.
