Rising margin costs create new revenue streams for brokers, Acuiti report

Rick Steves

“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. Our latest Clearing Management Insight Report found that the clearing community is innovating to ease the burden for clients and manage margin more efficiently.”

The latest quarterly survey of Acuiti’s Sell-Side Clearing Expert Network has found 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 Acuiti Sell-Side Clearing Expert Network consists of over 100 senior executives from clearing firms across the global market. Each quarter Acuiti surveys the network on a range of current issues and questions suggested by members of the network.

“Margin costs are unlikely to reduce significantly in 2023”

Conducted by Acuiti in partnership with margin optimisation provider Quantile, the study confirmed that sell-side clearing firms in the derivatives market are calling clients for margin intra-day and increasing treasury buffers in the wake of higher margin costs following the volatility in 2022.

Spikes in both initial and variation margin were detected, with the most significant rises in margin costs is asset classes such as energy, metals, commodities, and interest rates.

Ross Lancaster, Head of Research at Acuiti, said: “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. Our latest Clearing Management Insight Report found that the clearing community is innovating to ease the burden for clients and manage margin more efficiently.”

Rising margin costs create opportunities new for revenue streams

The survey also found that clearing firms are putting a greater focus on pricing in life-time costs of funding initial margin with almost 90% of respondents doing so.

Rising margin costs are 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. However, 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 study found.

Other key findings in the report include:

  • Clearing firms are strongly opposed to exchange ownership of clearing members citing conflict of interest as the key reason for their opposition;
  • The market is seeing 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;
  • Four fifths of the Expert Network believe that pension funds should not be permanently exempt from clearing in the EU and UK.

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