What margin do I post on a cleared swap vs. an uncleared one?

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AcadiFi · Accepted Answer

Cleared swaps at a CCP (LCH, CME, Eurex) require two margin types: Initial Margin (IM) and Variation Margin (VM). Uncleared bilateral swaps under the UMR regime now also require IM for large dealers but have different mechanics.

Initial Margin at CCP: typically calculated via SPAN or PAIRS methodology at 99% 5-day VaR. For a $100M 10-year USD IRS, IM ≈ 2-3% of notional = $2-3M, posted in eligible collateral (cash, USTs, high-grade sovereigns). IM protects CCP during close-out window if member defaults.

Variation Margin: daily MTM settled in cash, no threshold, zero-interest on cash. If your swap MTM moves +$1.2M overnight, CCP credits $1.2M to your account.

Uncleared under UMR: Phase 6 (2022) extended IM to firms with >$8B AANA. IM uses ISDA SIMM model (sensitivity-based), segregated at third-party custodian, threshold $50M. VM is zero-threshold cash daily.

Example: Harwick Pension runs $30B derivatives book (uncleared portion $9B AANA). Under UMR Phase 6 they now post SIMM-based IM of ~$180M segregated at State Street custodian. This increased their funding costs by roughly 8bp annualized on the hedged portfolio, per their 2025 10-K disclosure.

What margin do I post on a cleared swap vs. an uncleared one?

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