Tariff-induced volatility caused spike in derivative-related margin calls, data shows

By Laura Matthews

(Reuters) -The value of derivative-related margin calls at hedge funds and other market participants nearly tripled after the Trump administration announced larger-than-expected U.S. tariffs this month, before declining after a 90-day pause, according to OSTTRA, which provides post-trade services.

Data showed the total value of those calls rose by 180% from April 2-10, placing significant liquidity stress on investors, and raising the number of disputes between trading parties by 25%, it said.

Margin call values have now returned to pre-tariff levels, said OSTTRA, which KKR said this month it would buy from S&P Global and CME Group.

The demand for margin calls increased 35%, much of which stemmed from variation margin, or additional collateral investors must pay to reflect the change in market value of their position to prevent them from defaulting on a trade, OSTTRA said.

OSTTRA, which runs a platform that reconciles more than 90% of bilateral derivatives globally, collects data by tracking post-trade processes, focusing on margin calls, collateral movements, and disputes across global financial markets.

   The margin calls data is drawn primarily from the derivatives market, specifically focusing on exchange-traded derivatives and cleared repurchase agreement trades.

Hedge funds typically use margin accounts to borrow cash from prime brokers to trade.

To show how heightened volatility resulting from tariff policies has been costly for market participants, OSTTRA said a hedge fund managing 100 margin calls per day averaging $5 million per call would normally face $500 million in daily collateral flows.

But the recent volatility meant that fund suddenly had an additional $900 million in collateral demands, bringing its total daily margin obligations to $1.4 billion, much of which may require funding in cash, it added.

The margin call demand was seen across markets, according to OSTTRA, including equities, rates, foreign exchange, commodities as well as credit derivatives and repurchase agreements.

"The frequency and size of margin calls did go up during this episode," said Ted Post, head of Prime Sales Americas at BNP Paribas. "The amount of margin calls were elevated and that’s certainly a sign of stress in markets, but hedge funds managed well through the event."

Post added the risk was mitigated because many equity derivatives desks on Wall Street were positioned and hedged for this, as were their clients.

(Reporting by Laura Matthews; additional reporting by Carolina Mandl in New York; editing by Rod Nickel)