Regulation hikes margin 43% in two years - ISDA

The amount of initial margin given up to satisfy regulatory requirements on uncleared swaps has increased over 40% in the past two years, according to new research.

Data from the International Swaps and Derivatives Association, a trade body, said regulatory initial margin (IM) amassed by the top 20 derivatives firms totalled $105.2bn (£84.2bn) last year, up 43% on 2017, which was the first full year after regulatory margin rules took effect.

The 20 firms with the largest derivatives books, known as phase-one firms, saw initial margin allocations from customers increase a quarter last year compared to 2018 and by 14% in 2018 to $83.8bn from $73.7bn in 2017.

Overall, $173.2bn of IM was collected at year-end 2019 by the 20 phase-one firms that took part in Isda's latest annual margin survey, a 10% increase from the end of 2018. This included $68bn from transactions outside the scope of margin rules, including legacy transactions.

Olga Roman, head of research at Isda, told Global Investor late on Tuesday: “The increase in regulatory IM was mainly driven by two factors: new non-cleared derivatives transactions executed by phase-one, phase-two and phase-three firms; and the extension of the margin requirements to phase-four firms, which became subject to the IM requirements from September 2019.”

Phase-two firms were included in IM requirements from September 2017, and phase-three firms from September 2018. Of the 27 firms surveyed, Isda received responses from 20 phase-one, four phase-two and three phase-three firms. The survey also includes publicly available margin data on cleared derivatives from two US central counterparties (CCPs), four European CCPs and two Asian CCPs.

Isda published a checklist of the functions that firms will need to introduce to ensure they comply with the uncleared margin rules in February, identifying four self-assessment functions, 11 initial margin calculation tasks, nine segregation functions and six documentation tasks within a total of 59 functions.

Global regulators last week delayed the deadline for completing the final two implementation phases of the uncleared margin rules in response to the coronavirus pandemic.