Incremental Initial Margin and Guarantee Fund Contributions Associated with Moving Bilateral Over-the-Counter Derivative Contracts to Central Counterparties (CCPs)
|Total Outstanding (Trillions of U.S. dollars of notional amounts)||Increment Moved to CCPs1 (Trillions of U.S. dollars of notional amounts)||Initial Margin and Guarantee Fund2 (As a fraction of offloaded notional amounts)||Incremental Initial Margin and Guarantee Fund (Billions of U.S. dollars)|
|Credit default swaps||36||24||1/600 to 1/300||40-80|
|Interest rate derivatives||4373||1003||1/5,000 to 1/3,300||20-30|
Two-thirds of all eligible credit default swaps and one-third of foreign exchange, equity, commodity, and “unallocated” derivatives are assumed to be moved to CCPs. See footnote 3 for the assumptions applied to interest rate derivatives.
The ratios of initial margin and guarantee fund to notional cleared used to estimate costs to establish well-capitalized CCPs are drawn from recent CCP clearing activity. The ratios account for the impact of both multilateral compression and the margin rates on the resulting compressed notional amounts. For example, the 1/600 applied to credit default swaps could be consistent with a 1:10 compression ratio and a 1/60 margin rate.
$200 trillion of interest rate swaps are already on CCPs against which about $20 billion of initial margin and guarantee fund contributions have been posted. $100 trillion of the remaining $237 trillion of interest rate derivatives is assumed to be moved to CCPs.
Other derivatives include contracts linked to foreign exchange ($49 trillion), equities ($7 trillion), commodities ($4 trillion), and an “unallocated” amount ($72 trillion).