Hedge funds terms take a hit, finds ECB

Research by the ECB finds that euro-denominated securities became less favourable for hedge funds between June and August.
By Paul Walsh
Provisions of finance collateralised by euro-denominated securities and over the counter (OTC) derivatives become less favourable for hedge funds during a three-month reference period according to European Central Bank (ECB) research.

The research, conducted as part of the ECB’s SESFOD survey, revealed that this applied to the period from June until August.

Respondents reported that terms offered to hedge funds and banks had become less favourable primarily due to the reduced availability of balance sheet or capital.

The research also suggests that these terms are expected to tighten further over the next reference period between September and November 2016.

In other findings, respondents reported only a few changes in credit terms and conditions offered to counterparties for most non-centrally cleared OTC derivatives over the reference period.

The survey responses also indicate that initial margin requirements and credit limits became less favourable and valuation disputes increased, partly due to new requirements to exchange initial margin (IM) as of 1 September 2016.

Earlier this year, the International Swaps and Derivatives Association (ISDA) expressed concerns about the increase in IM requirements for non-centrally cleared OTC derivatives.