Increased Volatility Changing Margin Processes – Report
Posted by Colin Lambert. Last updated: January 18, 2023
The increased volatility in markets generally has seen clearing firms become more proactive in margin calls on clients and a greater push to optimise processes and the management of margin more generally.
The latest quarterly survey from Acuiti, which surveys clearing participants was produced in association with optimisation firm Quantile, and finds 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 highest rises were seen in energy, commodities, metals and interest rates.
The survey also finds that clearing firms are putting a greater focus on pricing in life-time costs of funding initial margin with almost 90% of respondents adopting this practice. 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, trading less to mitigate rising margin costs.
It’s not all bad news, however, for the survey finds that 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 report also finds that clearing firms are “strongly opposed” to exchange ownership of clearing members, citing conflict of interest as the key reason for their opposition. It sees 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.
Elsewhere, around 80% of respondents 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,” says Ross Lancaster, head of research at Acuiti.