Clearing House Margin calls in Q1 2020

Clearing Houses have recently published data on the magnitude of margin calls they made in Q1 2020 and these are interesting to say the least. Given the massive price volatility we observed in March across all asset classes, we knew these were going to be big numbers, so let’s dive into the detail. Variation Margin […]

CME S&P 500 Futures Margins in March 2020

In a recent blog, procylical margins in the time of covid-19, I reproduced a chart from a BIS Bulletin showing that IM requirements for US Equity Index Futures doubled during March, the peak of the covid-19 market crisis. Today I will take a detailed look into these margin changes, concentrating on the S&P 500 index. […]

Backtesting of margin models

Given the recent increases in initial margin that I covered in a few recent blogs (see Procyclical margins in the time of Covid-19 and Crashing rates and swap margins), I wanted to look into backtesting of margin models. Background Backtesting is a well established practice, widely used by all CCPs to check the adequacy of […]

Procyclical margins in the time of Covid-19

I recently read an interesting BIS Bulletin, titled “The CCP-Bank nexus in the time of Covid-19”, by Wenqian Huang and Elod Takis (available here), with the following key takeaways: The specific part I am going to focus on today is the third bullet point, “higher margins should be expected but the extent of procyclicality or […]

How Much Margin? 2019 Edition

We analyse how much Initial Margin is being held versus derivatives in 2019. This covers cleared and uncleared OTC derivatives, plus exchange traded contracts (Futures and Options). It is difficult to perform the same analysis for Variation Margin. We take a look at the latest ISDA Margin Survey to see if it holds the answers. […]

Crashing Rates and Swap Margins

In observing the markets over the last few weeks there are so many significant moves; Oil prices collapsing by 30% in a day, S&P500 declining 7.6% in a day, the 7th worst move since WW2 and worst since 2008, the whole US Treasury Curve out to 30Y trading below 1% for the first time ever. […]

CCP Default Management Auctions

The Default at Nasdaq Clearing has re-invigorated industry discussions on default management practices and we are now seeing the fruits of these labours. For example CCP12 recently published a CCP Best Practices Paper and LCH published Best Practices in CCP Risk Management. Today I will look at the BIS CPMI-IOSCO “Discussion paper on central counterparty […]

ISDA Margin Survey 2018

Uncleared Margin Rules (UMR) for IM have now been in place for two and a half years The ISDA Margin Survey Year-End 2018 provides a good overview of the regulatory IM received $83.8 billion at Dec 31, 2018, up from $73.7 billion at Dec 29, 2017, an increase of 14% Timeline for Margin Rules The following diagram from the […]

Reducing Counterparty Risk of Uncleared Derivatives

In my previous posts I concluded that uncleared counterparty risk is bigger than traded notional figures suggest and that, so far, UMR has only driven a limited further shift towards clearing. Here, as promised, I take a spin through approaches which complement new trade clearing and can also improve OTC uncleared counterparty risk efficiency. Summary […]