April 10, 2014

ISDA Margin Survey 2014 | 87% Is The Answer

The International Swaps and Derivatives Association, Inc. (ISDA) today released results from its 2014 ISDA Margin Survey at its 29th Annual General Meeting in Munich.

ISDA released their annual margin survey today, their announcement is below.
The International Swaps and Derivatives Association, Inc. (ISDA) today released results from its 2014 ISDA Margin Survey at its 29th Annual General Meeting in Munich.
The 2014 Margin Survey shows that the estimated amount of collateral in circulation in the non-cleared over-the-counter (OTC) derivatives market decreased 14% from $3.7 trillion at the end of 2012 to approximately $3.17 trillion by December 31, 2013.  Much of this decrease can be attributed to the rise of mandatory central clearing.
The number of active collateral agreements (those with exposure and/or collateral balances) supporting non-cleared OTC derivatives transactions was 133,155 agreements at the end of 2013. Eighty-seven percent of these are ISDA agreements. Responding firms indicated that 90% of non-cleared OTC derivatives trades were subject to collateral agreements at the end of 2013.
According to the 2014 Margin Survey, the use of cash and government securities continues to account for roughly 90% of non-cleared OTC derivatives collateral.
As in the past, participants indicated the majority of portfolios they transact consist of fewer than 100 trades. Eighty-seven percent of non-cleared OTC derivatives collateral agreements relate to such portfolios. Only 0.3% involve portfolios of more than 5,000 trades as of December 31, 2013.
The 2014 Margin Survey also demonstrates that portfolio reconciliation is widely used and considered a best market practice. Larger-sized portfolios (100-499 trades) show a 5% increase in daily reconciliation at the end of 2013 compared to 2012. Dodd-Frank and EMIR regulations involving more rigorous and frequent portfolio reconciliation are expected to continue driving this trend. Eighty-four percent of large firms surveyed indicated they reconcile their portfolio mix on a daily basis.
“Collateralization has a fundamentally important role to play in risk mitigation,” said Robert Pickel, ISDA Chief Executive Officer. “Over the past 14 years, ISDA’s Margin Survey has provided a consistent set of benchmarks for collateral use and is part of a broader set of the Association’s initiatives in the area of collateral, including documentation, best practices and practitioner guidelines.” 
Of the 61 firms responding to the 2014 ISDA Margin Survey, 87% were banks and broker dealers. The remaining participants consisted of asset managers, hedge funds, insurance companies and other (sovereigns, government-sponsored entities (GSEs), master trust banks and buy-side institutions). Participants were based in 20 different countries across three regions: Europe/Middle East/Africa (52%), the Americas (33%) and Asia (15%).
The survey can be downloaded from the ISDA Surveys page or attached below. The survey relates to bi-lateral margin agreements, 87% of which are using the ISDA CSA form. This survey does not include cleared business which is margined centrally by CCPs (for direct members) but does include margin agreements used to cover the cleared business between a Client and a Member of a CCP. The majority of respondants are large firms making up 87% of the group.  87% of portfolios are of less than 100 trades, which illuminates the vast number of buy-side portfolios being margined, and the investment needed to monitor and manage the risk for that market.
The survey also points out that many firms are now using some form of optimisation of their collateral portfolio and agreements.  63% are performing daily optimisation which leaves 27% not doing so, perhaps there's still an opportunity for vendors to sell solutions to those firms.
The survey also highlights the adoption of electronic messaging to manage margin calls, but take up varies across firms with a big bias towards large firms and a big opportunity to bring small firms into the electronic space.

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