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Opportunities and Challenges for Hedge Funds in the Coming Era of Optimization
Source: NFA
Billions of Dollars
Chart 29: FCM’s Cleared Swap Collateral Required To Be Held In Customer Segregation
$22.3B
$32B
$28B
$26B
$30B
+64%
$34B
$24B
$37.5B
30 Sep
31 Oct
30 Nov
31 Dec
31 Jan
28 Feb
31 Mar
30Apr
31 May
$22B
$20B
$36B
$38B
$40B
30 June
31 July
The National Futures Association (NFA) began
publishing a new data series on the amount of
customer collateral being held in segregation at
the end of September 2013. This pool represents
the required collateral postings from all the FCMs
involved in the OTC clearing space in the U.S. Chart
29 shows the progression of collateral postings from
the inception of this reporting series to the end of
July 2014—the first full nine months of mandatory
clearing in the U.S.
As shown, when mandatory OTC clearing under
Dodd-Frank was fully implemented at the end of
September 2013, required customer collateral held
in segregation was $22.3 billion. By July 2014, the
figure had risen to $37.5 billion—an increase of 64%
in just the first nine months of activity.
The composition of that collateral also confirms the
market perception that the new OTC clearing rules will
be tying up HQLA. Chart 30 shows the percentage
of collateral being posted by the FCMs as of July 31,
2014. Cash held at banks makes up the biggest pool
of collateral (48%), followed by U.S. government
securities (34%) and money market funds (17%). GSE
securities made up only 1% of the collateral pool.
Bank certificate deposits and municipal bond postings
made up 0% of the customer segregation pool.
These figures represent the tip of the iceberg on what
is expected to occur in coming years. In their latest
survey, ISDA notes that in the credit default swap
(CDS) markets, central clearing and netting made
further inroads in 2013. Contracts being held with
central counterparties accounted for 26% of notional
CDS outstanding at end-2013, up from only 12% at
the end of 2012. In addition, bilateral netting
agreements reduced the net market value of
outstanding CDS contracts, which provide a measure
of exposure to counterparty credit risk, to 21% of
their gross market value.
While these figures show progress, they underscore
how much more change is likely to occur in these
Cash Held
at Banks
48%
U.S. Government
Securities
34%
Money
Market
Funds
17%
GSE Securities
1%
Chart 30: Breakdown of Collateral Posted Against
FCM Cleared Swap Transactions Q3 2014
Source: NFA