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Derivatives traders forced to provide $27bn collateral post-Brexit 

November 17, 2016

Joe Rennison, Gregory Meyer & Philip Stafford, Financial Times

Derivatives traders were forced to stump up tens of billions of dollars the day after Britain’s vote for Brexit to cover volatile price movements, testing the foundations of the market’s post-financial crisis architecture.

Five of the largest clearing houses in the world demanded $27bn in additional collateral across derivatives products on June 24, according to data from the Commodity Futures Trading Commission, the main US derivatives regulator. That was $22bn, or five times, greater than the previous 12-month average, the CFTC found. 

The disclosure came as the clearing houses passed their first stress test from the regulator.

Clearing houses, or CCPs, are seen as critical backstops in derivatives markets, standing in as buyer to each seller and seller to each buyer on contracts ranging from interest rate swaps to oil futures. They collect collateral, or “margin”, to cover potential losses should a party to a trade default.

The CFTC noted that liquidity issues, as well as operational risk and cyber risk, were not covered by the stress test. The test only assessed a CCP’s ability to withstand losses given its current resources, so even if the $27bn called for after the UK voted to leave the EU had not been paid, the CCPs would still have passed. Read more

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