London, January 17th 2023: Sell-side clearing firms in the derivatives market are calling clients for margin intra-day and increasing treasury buffers in the wake of higher margin costs following the volatility in 2022.
The latest quarterly survey of Acuiti’s Sell-Side Clearing Expert Network, which was produced in partnership with the market-leading margin optimisation provider, Quantile, found that over half of respondents were calling clients for more intra-day margin while 64% were either using or looking to use optimisation solutions to manage margin costs.
The moves follow significant spikes in both initial and variation margin as a result of the elevated volatility in 2022. Respondents to the quarterly survey reported that energy, metals, commodities and interest rates were the asset classes that experienced the most significant rises in margin costs.
Clearing firms are also putting a greater focus on pricing in life-time costs of funding initial margin with almost 90% of respondents doing so.
The rising margin costs are also having an impact on client behaviour, with clients seeking to participate in margin optimisation services and, to a lesser extent, are trading less to mitigate rising margin costs.
However, the increased margin costs are also creating opportunities for new revenue streams for FCMs, with two thirds of respondents reporting they were either currently charging or planning to charge clients for intra-day liquidity.
The Acuiti Sell-Side Clearing Expert Network consists of over 100 senior executives from clearing firms across the global market. Each quarter Acuiti surveys the network on a range of current issues and questions suggested by members of the network.
In addition to a deep-dive on the impact of margin increases on firms, this quarter’s report also analyses attitudes to the LDI pension crisis in the UK in September 2022.
Other key findings in this quarter’s report are:
- Clearing firms are strongly opposed to exchange ownership of clearing members citing conflict of interest as the key reason for their opposition
- The market is seeing demand from clients to rebate income made from interest on margin held on their behalf. Almost three quarters of FCMs are granting partial rebates to some clients.
- Four fifths of the Expert Network believe that pension funds should not be permanently exempt from clearing in the EU and UK
“With ongoing volatility in global commodity prices and expectations of more interest rate rises to come, margin costs are unlikely to reduce significantly in 2023. Our latest Clearing Management Insight Report found that the clearing community is innovating
to ease the burden for clients and manage margin more efficiently,” says Ross Lancaster, Head of Research at Acuiti.
To download the full report click here.
For more information, contact Nastja Konic
Tel.: +44 (0) 203 998 9684
Acuiti is a management intelligence platform designed to provide Senior Industry Professionals in the Derivatives Industry with high-value insight into industry-wide performance and business operations. Acuiti provides a platform through which our exclusive network of Senior Industry Executives can share and source information on day-to-day operational challenges, providing them and their management teams with increased transparency and in-depth analysis to make more informed decisions and benchmark company performance. Financial Institutions benefiting from our services include Banks, Non-bank FCMs, Brokers, Proprietary Trading Firms, Hedge Funds and Asset Managers.
Quantile is a market-leading optimisation provider that reduces counterparty risk, notional and capital requirements to increase the efficiency and liquidity of derivatives markets, improve returns for clients, and make the financial system safer.
Since launching its first services in 2017, Quantile has eliminated trillions of dollars of gross notional through interest rate compression and billions of dollars in initial margin through counterparty risk optimisation.
Quantile’s clients, including all the top tier global banks, regional banks, buy-side firms, and other large institutional market participants, are serviced from offices in London, New York, Amsterdam and Sydney.
Quantile is an LSEG Business.