19 October 2017
Reporter: Jenna Lomax

Margin rules depress derivative contract terms, survey finds

New EU margin requirements are driving less favourable non-price terms and conditions in new or renegotiated over-the-counter (OTC) derivatives master agreements, according to a EU Commission market survey. Respondents to the commission’s quarterly survey on EU securities financing market liquidity cited the implementation of European Market Infrastructure Regulation (EMIR) margin requirements for non-cleared OTC derivative contracts as the main driver of the less favourable contract terms. Only few changes were reported regarding credit terms and conditions with respect to non-centrally cleared OTC derivatives. The commission surveyed a panel of 28 large banks, comprising 14 euro area banks and 14 banks with head offices outside the euro area. Overall, the survey found that credit terms offered to counterparties in both securities financing and OTC derivatives transactions in the three month prior to September remained basically unchanged. According to the commission, the relative stability in overall credit terms over the past two reference periods follows the considerable net tightening of credit terms reported throughout the previous two years. The results mirror those from the previous survey, which also saw minimal changes to overall liquidity. A small net percentage of respondents reported a decrease in the maximum amount and the maximum maturity of funding for many types of collateral, as well as a decrease in haircuts applied to government bonds and a decrease in financing rates when government and corporate bonds were used as collateral. In a report on the survey, the commission stated: “On balance, respondents reported that the liquidity and functioning of markets for all types of underlying collateral covered by the survey remained basically unchanged. These results follow the deterioration reported since mid-2015 in liquidity and functioning of markets for many types of euro-denominated collateral.” The survey is conducted four times a year and covers changes in credit terms and conditions over the three-month reference periods ending in February, May, August and November. The September 2017 survey collected qualitative information on changes between June and August 2017.
More news
The latest news from Securities Lending Times
Join Our Newsletter

Sign up today and never
miss the latest news or an issue again

Subscribe now
Hedge funds continue 2017 run
23 November 2017 | Madrid | Reporter: Drew Nicol
Global AUM of hedge funds rose 24 percent to $3.2 trillion in the past two years, according to data captured by IOSCO’s latest market survey.
Goldman Sachs appointed by Thrivent for agent lending
23 November 2018 | Minneapolis | Reporter: Jenna Lomax
Thrivent Financial has appointed Goldman Sachs as it new lending agent
ICMA maps repo and cash bond operations
22 November 2017 | Zurich | Reporter: Zsuzsa Szabo
ICMA has launched a free-to-read mapping directory for more than 80 technology solutions for repo and cash bond operations
FCA publishes MiFID II guide
22 November 2017 | London | Reporter: Jenna Lomax
The guide focuses on the regulatory regime in MiFID II for trading venues and data reporting services providers
Hedge fund industry reaches new highs in Q3
22 November 2017 | London | Reporter: Zsuzsa Szabo
The hedge fund industry has recorded strong performance in Q3 2017, after stumbling in 2016, according to Preqin
India reviews SBL position limits
21 November 2017 | New Delhi | Reporter: Zsuzsanna Szabo
The Securities and Exchange Board of India has altered its securities lending rulebook, following market calls for change
EU Commission opens consultation of SFTR TR fees
21 November 2017 | Paris | Reporter: Drew Nicol
UK-based trade repositories may be forced to shoulder additional third-party recognition fees to operate under EU regulatory frameworks post-Brexit, according to proposed EU Commission rules