Part 2: Initial margin trends and skin in the game

The Public Quantitative Disclosure (PQD) is an internationally agreed format defined by CPMI-IOSCO with the intention of enhancing CCP market transparency. Eurex Clearing has published its PQD since 2015 and continuous strongly to support transparency, both for market stability reasons as well as enabling the challenge and support of centralized risk management.

With the disclosure of Q4/2016, Eurex Clearing began a series of commentary to highlight key trends, discuss current topics and to shed some light on selected data points. Read the second part of the series and CPMI IOSCO key highlights for the first quarter of 2017.

Initial margin development

Initial margin requirements have increased significantly in Q1 2017 by 30% from 36 bn EUR, to more than 47 bn EUR ¹, constituting the highest initial margin level since the end of 2015. This upward trend occurred mainly due to an overall increase in volumes and open interest.

The equity liquidation group in particular has significantly increased over the first quarter (+46%). It currently accounts for more than half of overall initial margins (57%) - see Figure 1. The second largest liquidation group, Fixed Income incl. OTC IRS, currently makes up 23% of initial margins, having increased by 3% in Q1 2017.

Initial margin requirements ¹ are covered by eligible margin assets ². The overcollateralization currently amounts to 24% ³. The collateral composition between cash and securities margin collateral shifted to cash over the last quarter, with a current cash ratio ⁴ of 51%, a 7 percentage point increase compared to Q4 2016. Government bonds remained stable and constitute 22% of the overall initial margin collateral ⁵.

Skin in the Game - Eurex Clearing increased its equity capital by 100 m EUR

The so-called ‘Skin in the Game’, is a dedicated amount provided by Eurex Clearing. It is utilized after the contributions to the Default Fund (DF) provided by the defaulted Clearing Member have been exhausted and prior to the utilization for the DF contribution of non-defaulted Clearing Members. To further strengthen the Lines of Defense waterfall, Eurex Clearing increased its equity capital by 100 m EUR in Q1 2017, out of which 50 m EUR were allocated as a dedicated amount to the lines of defense, now amounting to 150 m EUR ‘Skin in the Game’ ⁶. With now more than 5% of the Default Fund ⁷ made up of Eurex Clearing’s contribution, Eurex Clearing shows its strong commitment to strengthen the lines of defense beyond regulatory requirements.

¹ PQD 6_1_1

² PQD 6_2_15

³ PQD 6_2_15 to PQD 6_1_1

⁴ PQD 16_1_1 to 6_2_15

⁵ (PQD 6_2_5 + 6_2_6) to 6_2_15

⁶ PQD 4_1_1

⁷ PQD 4_1_4