NEW YORK, June 21, 2013 – The International Swaps and Derivatives Association, Inc. (ISDA) today released results from its 2013 ISDA Margin Survey.
The 2013 Margin Survey reveals that collateral in circulation, which is a useful indicator of the total amount of collateral used to mitigate the credit risk of OTC derivatives, in the non-cleared OTC derivatives market rose 1% during 2012, from USD 3.65 trillion at end-2011 to USD 3.70 trillion as at December 31, 2012.
Among all firms responding to the survey, 69.1 percent of all non-cleared trades are subject to collateral agreements. For large firms, the figure is 75.3 percent.
On an asset class basis, 79.4 percent of all non-cleared CDS transactions and 72.5 percent of all non-cleared fixed income transactions are subject to collateral agreements. For large firms, the figures are 94.5 and 74.9 percent, respectively.
With respect to collateral types, cash used as collateral represents 79.5 percent of collateral received and 78.7 percent of collateral delivered, which is an increase from 78.8 and 75.6 percent respectively last year. Government securities constitute 11.6 percent of collateral received and 18.4 percent of collateral delivered this year, which is consistent with last year’s results.
The number of active collateral agreements (those with exposure and/or collateral balances) supporting non-cleared OTC derivatives transactions was 118,853 at end-2012, of which 87% are ISDA agreements. Approximately 88% of all collateral agreements are bilateral, an increase of 4 percentage points over last year.
87.4 percent of all collateral agreements are with counterparties whose portfolios of collateralized transactions include less than 100 OTC derivatives. 0.4 percent of all collateral agreements are with counterparties whose portfolios of collateralized transactions include more than 5000 trades.
The 2013 Margin Survey also reveals that portfolio reconciliation, which refers to the matching of the population, trade economics and mark-to-market of outstanding trades in a collateralized portfolio, is widely used and considered best market practice. For all firms in 2013, the survey evidences a clear effort to increase the frequency of portfolio reconciliation. Regulatory requirements will accelerate that trend. Building on the work done prior to the new regulations, the industry is now well-positioned to meet the new regulatory standards.
“Over the past 13 years, the Margin Survey has provided a consistent set of benchmarks for, and proved a reliable barometer of collateral use in, the OTC derivatives market,” said Robert Pickel, ISDA Chief Executive Officer. “As the survey clearly demonstrates, collateralization remains among the most widely used and effective methods of mitigating counterparty credit risk in the OTC derivatives market, and market participants have continued to increase their reliance on collateralization. In an evolving regulatory environment that seeks to reduce the counterparty risk associated with derivatives, the continued use of bilateral collateralization has, in conjunction with the use of central clearing, an important role to play in risk mitigation.”
Collateralization, the increase in clearing, and the effectiveness of netting and portfolio compression all work towards the same goal – reducing counterparty risk. Significant progress in each of these areas has been achieved and continues to be made as the industry works proactively and cooperatively with regulators and policy makers globally.
Of the 78 firms responding to the 2013 ISDA Margin Survey, 63 are banks or broker-dealers. The remaining participants consisted of asset managers, hedge funds, energy trading firms and insurers.
ISDA’s annual Margin Survey, first published in 2000, provides information about the use of collateral in the OTC derivatives business. The data used in the 2013 Margin Survey is sampled as of December 31, 2012. Over the past 13 years, the Margin Survey has provided a consistent set of benchmarks for collateral use. Each year the Margin Survey evolves slightly to reflect market developments, and thus in the 2013 Survey more attention is paid to collateralization of cleared derivatives, in addition to coverage of the bilateral, non-cleared market. The Margin Survey is part of a broader set of ISDA initiatives in the area of collateral, including documentation, best practices and practitioner guidelines.
Since 1985, ISDA has worked to make the global over-the-counter (OTC) derivatives markets safer and more efficient. Today, ISDA has over 800 member institutions from 60 countries. These members include a broad range of OTC derivatives market participants including corporations, investment managers, government and supranational entities, insurance companies, energy and commodities firms, and international and regional banks. In addition to market participants, members also include key components of the derivatives market infrastructure including exchanges, clearinghouses and repositories, as well as law firms, accounting firms and other service providers. Information about ISDA and its activities is available on the Association’s web site: www.isda.org.
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