ECB survey shows euro securities financing terms ease further as derivatives margin demands decline

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ECB euro securities financing eases

Highlights

ECB survey shows overall credit terms in euro securities financing and OTC derivatives ease slightly June–August 2026, extending previous rounds' trends, with further mild easing expected.
Demand for funding rises across most collateral types, led by equities, while financing rates and spreads increase for most-favoured clients and haircuts decrease for most bond and ABS collateral.
Initial margin requirements for non-centrally cleared OTC derivatives decrease slightly, particularly for FX, interest rate, equity and credit types, amid unchanged exposure limits and persistent market volatility.

Survey findings across funding and derivatives markets

As reported by the European Central Bank, overall credit terms and conditions in euro-denominated securities financing and OTC derivatives markets ease slightly for all counterparty types in the June to August 2026 review period, mainly through price terms. The pattern extends the easing seen in the previous three survey rounds, while respondents expect a further slight overall easing over the next three months.

Non-price terms ease slightly for banks and dealers, tighten slightly for hedge funds and remain unchanged for other counterparty types. A small number of respondents cite general market liquidity and functioning, competition from other institutions and counterparty financial strength as reasons for easier price terms, while hedge funds' use of leverage increases slightly.

In securities financing transactions, demand for funding secured against most collateral types rises, led by equities. Financing rates and spreads increase for most-favoured clients across all collateral types, while for average clients the increases are limited to domestic government bonds, other government bonds and convertible securities.

Haircuts decrease for most bond collateral types and asset-backed securities, and the maximum amount and maturity of funding available to counterparties increase for some collateral types. The use of central counterparties shows small and mixed changes, while the volume and duration of collateral valuation disputes remain unchanged.

Market stress backdrop and euro area implications

The survey period unfolds amid uncertainty linked to the conflict in the Middle East and volatile energy prices. The ECB raises its key interest rates by 25 basis points in June and holds them unchanged in July, providing the monetary policy backdrop for the reported shifts in pricing, funding demand and margin requirements.

For non-centrally cleared OTC derivatives, initial margin requirements decrease slightly for foreign exchange, interest rate, equity and several credit derivative types, while maximum exposures and trade maturities are broadly unchanged. Liquidity and trading deteriorate for equity and commodity derivatives but improve slightly for credit derivatives referencing sovereigns, and valuation disputes increase for several derivative types, particularly credit derivatives.

Terms in new or renegotiated master agreements ease slightly in some areas, while the posting of non-standard collateral remains unchanged. The results are based on responses from 26 large banks, including 14 euro area banks and 12 banks headquartered outside the euro area, underscoring that the trends reflect conditions across a broad cross-border dealer base.

Our earlier report on proposed reforms to the UK gilt repo market described how regulators are considering steps such as expanding central clearing and introducing minimum haircuts on non-cleared repo trades to strengthen market resilience. It also noted industry concerns that the changes could push hedge funds toward shorter-term daily repo funding, potentially increasing vulnerability to disruptions as leveraged participation in sovereign bond markets grows.

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