Derivatives traders target reduced expenses through cross-collateralization strategies
In the first half of 2025, Crisil Coalition Greenwich published a report titled "Fixed-income cross-margin opportunities: A driver of change." The study, based on interviews with senior derivatives market participants in the United States, delved into key factors affecting the cost of trading interest-rate futures and swaps.
The report, led by Senior Analyst Stephen Bruel, investigates key trends in margin and collateral for fixed-income cross-margin opportunities. According to Bruel, cross-margining can help manage costs and potentially reduce margin requirements.
The CCP basis, or the price differential between identical swaps contracts cleared at different Central Counterparties (CCPs), plays a significant role in determining costs for derivatives desks. Bruel suggests that the CCP basis may influence how market participants decide where to clear derivatives.
The study found that derivatives traders are actively managing collateral to reduce rising funding costs. Ninety-four percent of derivatives professionals believe margin savings can be realized by cross-margining USD swaps and USD futures.
Cross-margining brings multiple derivatives products into the equation to help manage costs and potentially reduce margin requirements. Central counterparties (CCPs) have enhanced cross-margining capabilities to minimize collateral costs.
Notably, historically, the CCP basis fluctuated with market volatility, but in recent months, it has remained stable between CME Group and LCH despite significant volatility.
The report also analyses strategies derivatives desks are using to mitigate collateral costs. Derivatives market participants are willing to clear swaps and futures at a specific CCP if the margin savings exceed the costs of hedging the basis.
In conclusion, the study by Crisil Coalition Greenwich provides valuable insights into the current trends and strategies in the fixed-income derivatives market, emphasizing the potential benefits of cross-margining and the role of the CCP basis in cost management.
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