Risk.net — Fixed Income topic

The Changing Shape of Variation Margin Collateral

Variation margin (VM) collateral, long dominated by cash, is facing pressure from higher funding costs, stricter regulations, and market stress, prompting firms to explore non‑cash alternatives. A Risk.net survey of 114 collateral specialists shows 57% of sell‑side and 33% of buy‑side firms have increased non‑cash VM usage, favoring government bonds, investment‑grade corporates and supranationals. Settlement failures and valuation mismatches are the chief operational challenges. Rising interest in tri‑party services, with about a quarter of firms already using them for both initial margin and VM, signals a shift toward more complex collateral structures.