The 2012 Margin Survey reveals that market participants continue to expand their use of collateral to mitigate over-the-counter derivatives credit exposures.
“Over the past 12 years, the Margin Survey has provided a consistent set of benchmarks for collateral use”, said Robert Pickel, ISDA Chief Executive Officer. “As the survey clearly demonstrates, collateralisation remains among the most widely used methods to mitigate counterparty credit risk in the OTC derivatives market, and market participants have increased their reliance on collateralisation over the years. In an evolving regulatory environment that seeks to reduce the counterparty risk associated with derivatives, the continued use of bilateral collateralisation has, in the same way as clearing, an important role to play in risk mitigation.”
The role of central counterparties (CCPs) in clearing trades and in managing collateral is of growing importance. This year, the Survey asked 14 large dealers to indicate their levels of collateralisation with central counterparties. The 2012 Margin Survey reports that the large dealers delivered approximately $50 billion of collateral as margin in central counterparties: $49.6 billion in their executing broker capacity and $0.7 billion in their clearing member capacity.
Collateralisation, the increase in clearing, and the effectiveness of netting and portfolio compression all work towards the same goal – reducing counterparty risk. Gross credit exposure of OTC derivatives after netting and collateral is approximately 0.1 per cent of outstanding notional amounts. 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.
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