Cash posted as collateral being an instrument in AnaCredit

• Question ID: 2018/0011
• Date of publication: 24/01/2018
• Subject matter: Instruments in the scope of AnaCredit, Current accounts - deposits and overdrafts
• AnaCredit Manual: Part II

Question

There is a question as to the extent to which payments of cash or deposits of collateral that cover actual or potential obligations incurred through financial derivatives – especially exchange-traded options or futures – are subject to AnaCredit reporting. Such payments are typically referred to as “margins” and are standard practice in financial derivative markets.

Answer

A distinction exists between repayable and non-repayable margin payments.

A margin is considered repayable if ownership of the margin remains with the counterparty that deposited it.

According to paragraph 5.220(c) of Regulation (EU) No 549/2013, repayable margin payments related to financial derivatives which consist of cash deposited to protect a counterparty against default risk are transactions in deposits (not transactions in financial derivatives) where the depositor has a claim on the counterparty holding the deposit. Please note the distinction between “transactions in financial derivatives” (which are outside the scope of reporting) and “transactions in deposits” related to transactions in financial derivatives, where the counterparty has the observed agent’s money on deposit. The latter fall within the scope of AnaCredit reporting.

In the context of AnaCredit, “other loans” and “deposits other than reverse repurchase agreements” are defined in accordance with Regulation (EU) No 549/2013. Consequently, repayable margin payments which consist of deposited cash are instruments that are subject to AnaCredit reporting.

Depending on the institutional sector of the counterparty with whom they are deposited (as the depositor may have a claim on an exchange, a brokerage or another institution), repayable margin payments are classified as “deposits other than reverse repurchase agreements” if the holding institution is an MFI and as “other loans” if the holding institution is a non-MFI.

A repayable margin deposit made using non-cash assets (such as securities) is not subject to AnaCredit reporting.

Under Regulation (EU) No 549/2013, non-repayable margin payments reducing or eliminating any asset/liability positions which may emerge during the life of the contract represent a transaction in financial derivatives. Consequently, non‑repayable margin payments are not subject to AnaCredit reporting.

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See also Negative market value as protection for cash collateral? Cash collateral posted under two-way CSA agreements in relation to currency forward contracts