Lynn Strongin Dodds assesses the trends and changes highlighted in the latest ISDA margin survey
Initial margin (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 for non-cleared derivatives was collected at the end of last year, largely unchanged from the $430.9 bn in 2023. This included both regulatory IM and independent amount (IA).
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 bn in in 2023. As for IA, the figure was $76.8 bn of IA grew 15.1% from $66.7 bn in 2023. And 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, which represent the firms with the biggest derivatives exposures that were subject to the regulatory IM requirements introduced in the US, Canada and Japan in September 2016, and later in Europe in February 2017. The survey also included responses from five of the six phase-two firms and seven of the eight phase-three firms – these firms were brought into scope of the regulatory IM requirements later in 2017 and 2018.
The survey also found that the composition of IM has significantly shifted since the trade group started the survey in 2017. While the survey found government securities continued to be the dominate form of collateral for most of the surveyed period, its share declined last year to 54.5%, which is down from its high in 2018 of 66.5%. In contrast, the share of other securities has grown since 2017 (18.4% in 2017 to a peak of 34.7% in 2024), which the report indicated is an evolution toward more diversified forms of non-cash collateral.
Moreover, the survey noted the composition of collateral for both regulatory IM and IA differs. For example, government securities are preferred for meeting regulatory IM requirements. One reason for this preference is that margin rules require that IM must be bankruptcy remote and this is more easily implemented using securities, stated the report.
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.
For VM, cash is still the predominant form of collateral, but its share has decreased for the fourth consecutive year (change from a high in 2020 of 80% to 68.3% last year). Other securities expanded by 13.8%, and the government counterparts grew to 17.8% – figures that are in line with the ongoing trend where a higher proportion of paid VM is 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 securities and government bonds making up the remainder. The report noted the amount of VM received by CCPs is not disclosed but they accept cash only.
