March Volatility and 

Clearing

Nick Rustad, Global Head of Clearing, J.P. Morgan

Global Markets Advisory Committee

December 17, 2020
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• The market turmoil during the spring of 2020 offered a powerful 

real-world stress test of the financial markets.

• The cleared derivatives markets withstood the test, proving that 

post-crisis reforms provided stability.

• Central clearing ensured mitigation of credit risk and improved 

counterparty risk management.

• However, this episode provides an opportunity to review the 

clearing system and consider the potential for improvements.

• FIA issued a paper in October reflecting upon lessons learned.

• The procyclicality of CCP margin requirements contributed to the overall 

level of stress in financial markets. 

• The steep and rapid increases in CCP initial margin requirements created 

funding pressures on FCMs and their clients.

• Unscheduled intraday margin calls made it more difficult for FCMs to 

forecast their liquidity requirements, adding to the stress.

Overview
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• FIA analyzed quarterly disclosures from nine major CCPs to 

estimate the impact of the market turmoil on initial margin 

requirements.

• The aggregate amount of initial margin at these nine CCPs rose 

from $563.6 billion at year-end to $833.9 billion at the end of the 

first quarter. In other words, initial margin increased by $270.3 

billion, or 48%, during that three-month period. 

• Customer funds data published by the CFTC show a similar trend. 

The total amount of customer collateral in clearing accounts at US 

FCMs rose by more than $136 billion in March. That increase was 

more than six times larger than any previous single month increase 

in the history of the industry.

• Although trading volume increased to record levels during this 

period, this was not the main driver for the increases in initial 

margin and customer funds. The total level of open interest, which 

measures the number of outstanding contracts, remained roughly 

constant through this period.

Overview
4

Initial Margin Held at Nine Major CCPs Reached $834 Billion in the First 

Quarter, an Increase of $270 Billion from Q4 2019

 $-

 $100

 $200

 $300

 $400

 $500

 $600

 $700

 $800

 $900

Q3

2015

Q4

2015

Q1

2016

Q2

2016

Q3

2016

Q4

2016

Q1

2017

Q2

2017

Q3

2017

Q4

2017

Q1

2018

Q2

2018

Q3

2018

Q4

2018

Q1

2019

Q2

2019

Q3

2019

Q4

2019

Q1

2020

Q2

2020

Billions USD

OCC

LCH SA

LCH LTD

JSCC

ICE Clear US

ICE Clear Europe

ICE Clear Credit

Eurex

CME

Source: FIA CCP Tracker, Public Quantitative Disclosures

Note: LCH LTD and LCH SA only include margin for cleared derivatives
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Initial Margin Levels Increased Dramatically at Some but Not All CCPs, 

Reflecting Differences in Asset Classes, Contract Types and Margin 

Models

205.2B

76.0B

49.2B

75.0B

25.8B

34.8B

204.6B

16.4B

76.2B

230.7 B

96.5 B

50.3 B

68.5 B

30.7 B

43.3 B

206.3 B

16.6 B

90.8 B

138.1 B

48.8 B

34.9 B

55.1 B

18.7 B

26.5 B

177.4 B

10.7 B

53.3 B

0 50B 100B 150B 200B 250B

CME

Eurex

ICE Clear

Credit

ICE Clear

Europe

ICE Clear US

JSCC

LCH LTD

LCH SA

OCC

Initial Margin in US Dollars

Q4 2019

Q1 2020

Q2 2020

Source: FIA CCP Tracker, Public Quantitative Disclosures

Note: LCH LTD and LCH SA only include margin for cleared derivatives
6

Customer Funds in US Futures Accounts Rose by More than $100 Billion 

in March, the Largest Single Month Increase Ever

0

 50B

 100B

 150B

 200B

 250B

 300B

 350B

3 7 11 3 7 11 3 7 11 3 7 11 3 7 11 3 7 11 3 7 11 3 7 11 3 7 11 3 7 11 3 7 11 3 7 11 3 7 11 3 7 11 3 7 11 3 7 11 3 7 11 3 7 11 3 7

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Customer Funds in US Dollars

Customer Funds in FCM Accounts (Section 4(d) and Part 30)

Source: FIA FCM Tracker, Commodity Futures Trading Commission
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Was the Increase in Initial Margin Driven by Increases in the Level of 

Trading? Open Interest Data Show the Answer Is No

 -

 100

 200

 300

 400

 500

 600

 700

 800

 900

January

February

March

April

May

June

July

August

September

October

November

December

January

February

March

April

May

June

July

August

September

October

November

December

January

February

March

April

May

June

July

August

September

October

2018 2019 2020

Millions of Contracts

Month-End Open Interest for Exchange-Traded Futures and Options

OCC

LCH SA

JSCC

ICE Clear US

ICE Clear Europe

Eurex

CME

Source: FIA ETD Monthly Volume and Open Interest Report
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Spike in Margin Requirements:

For Equity Index Futures ...

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

E-mini S&P 500 Futures

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

Eurostoxx 50 Futures

0

200,000

400,000

600,000

800,000

1,000,000

1,200,000

1,400,000

1,600,000

1,800,000

Nikkei 225 Futures

Per contract margin requirements for three benchmark equity index futures, 

daily changes from Jan 1 to Jun 8, 2020

Source: data published on CCP websites and provided by FIA member firms
9

... Interest Rate Futures ...

0

500

1,000

1,500

2,000

2,500

US 10-Year Treasury 

Futures, CBOT

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

5,000

Euro Bund Futures, 

Eurex

0

200000

400000

600000

800000

1000000

1200000

1400000

JGB Futures, JPX

Per contract margin requirements for three benchmark interest rate futures, 

daily changes from Jan 1 to Jun 8, 2020

Source: data published on CCP websites and provided by FIA member firms
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... and Commodity Futures

0

3,000

6,000

9,000

12,000

15,000

WTI Crude Oil Futures, 

Nymex

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

Brent Crude Oil Futures, ICE 

Futures Europe

0

2,000

4,000

6,000

8,000

10,000

Gold Futures, 

Comex

Per contract margin requirements for three benchmark commodity futures, 

daily changes from Jan 1 to Jun 8, 2020

Source: data published on CCP websites and provided by FIA member firms
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The Number and Size of Margin Breaches Increased Dramatically in Q1 

as Mark-to-Market Changes in Values Exceeded Initial Margin

Number of Margin Breaches More Than 

Doubled During Q1

Average Size of Margin Breaches 

Increased by Four Times During Q1

0

1

2

3

4

5

6

7

8

Q3 2019 Q4 2019 Q1 2020 Q2 2020

Thousands of Instances

$0.0

$0.5

$1.0

$1.5

$2.0

$2.5

$3.0

$3.5

$4.0

$4.5

$5.0

Q3 2019 Q4 2019 Q1 2020 Q2 2020

Billions of US Dollars

Source: FIA CCP Tracker, Public Quantitative Disclosures

Note: Based on disclosures covering clearing services operated by nine CCPs:

CME, Eurex, ICE Clear US, ICE Clear Credit, ICE Clear Europe, JSCC, LCH LTD, LCH SA, OCC
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Comparing OTC and ETD: 10Y US Interest Rate Swaps

-6,000,000

-4,000,000

-2,000,000

0

2,000,000

4,000,000

6,000,000

20-Jan-20 10-Mar-20 29-Apr-20 18-Jun-20 7-Aug-20 26-Sep-20 15-Nov-20 4-Jan-21

Swap PnL vs Margin

PnL (of payer) CME: Pay CME: Rec LCH: Pay LCH: Rec

Source: J.P. Morgan
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Comparing OTC and ETD: 10Y US Treasury Futures

-2,500

-2,000

-1,500

-1,000

-500

0

500

1,000

1,500

2,000

2,500

20-Jan-20 10-Mar-20 29-Apr-20 18-Jun-20 7-Aug-20 26-Sep-20 15-Nov-20 4-Jan-21

10Y UST PnL vs Margin

PnL Margin Margin

Source: J.P. Morgan
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Rate of Change

Source: J.P. Morgan
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Initial Margin

• Initial Margin is the first line of defense against losses from a 

customer or member default.

• Initial Margin should increase during market stress periods, but 

frameworks should also employ safeguards against procyclical 

impacts of margin.

• CCPs must employ a margin framework that should cover the cost 

of portfolio liquidation

• at the indicated confidence level in various market conditions 

(including changes in volatility)

• without procyclical jumps in margin requirements.

• Margin floors protect initial margin from falling too low during low 

volatility. 

• FIA calls on margin floors to be reviewed and, in some cases, 

strengthened.
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Margin Floors

• Balance must be struck between appropriate pricing (not too 

high to discourage market participation) and safeguarding 

against procyclical impacts.

• FIA recommends a principles-based approach:

1) Stress Lookback Periods – Lookback periods are used to calibrate margin 

floors and must be sufficient in length (ie, 10 years) and include periods of 

significant market stress, such as 2008 or 2020. Look-back periods must 

demonstrate sufficiency and not be simply set at regulatory minimums.

2) Contract Specific – floors should be calibrated for the contract and asset 

class.

3) Absolute and Percentage Returns – margin amounts should be calibrated 

based on an analysis of both absolute and percentage returns in order to 

set floors that are adequate in both low and high price regimes.

4) Back-Testing - CCPs must demonstrate through back-testing that the 

floors are meaningful.
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Back-Testing Rate of Change

• Policymakers should consider what measures can be taken to 

avoid rapid increases in margin requirements.

• One suggestion is to use back-testing to measure the potential 

for large and sudden increases and use the results to adjust the 

margin model.

• Define a maximum rate of change over a pre-defined period of time, 

considering as an input the extent of change that would cause 

significant stress for clearing members, clients and the financial system.

• Back-test using various stress scenarios to make sure the targeted rate 

of change is not exceeded.

• This is not intended to set a hard limit on margin increases 

when needed. 

• Rather, it will help determine whether a margin model is 

sufficiently robust and anti-procyclical, and provide 

transparency for clearing members so that they can anticipate 

the potential call for liquidity.
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Intraday Margin

• CCPs must be able to call for additional funds intraday to maintain sufficient 

collateral to cover actual and potential losses. 

• Intraday calls can intensify funding pressures. Care should be taken to 

minimize that pressure, particularly during periods of market stress. 

• Clearing members keep buffer margin in various forms, using internal 

assessments to predict in advance potential calls.

• CCPs require margin within 60 minutes; clearing members collect from 

clients on T+1. 

• If initial margin is appropriately calibrated, ad hoc calls should be the 

exception and only used in extreme emergency situations. Unpredictability 

of ad hoc calls creates strain. 

• Some CCPs call only for intraday losses and do not pay out the gains, 

creating further liquidity strains. 

• Intraday calls that are required to be met in cash and come late in the day 

can cause funding issues. 

• Finally, CCPs do not always allow such intraday funding to be applied 

against an end-of-day requirement, resulting in double funding. 
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Intraday Calls

• Routine intraday calls should be made at the same time every day.

• An intraday call should clearly separate initial and variation margin 

CCPs should allow non-cash collateral to cover intraday calls for IM

• Ad hoc intraday calls should be necessary only in times of extreme 

market dislocation or when the CCP has large, uncovered exposure 

to a member.

• CCPs should provide full transparency for triggers of ad hoc 

intraday margin calls.
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