Derivative Margin Calls: A New Driver of MMF Flows

IMF Working Papers, March 17, 2023

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Authors: Maddalena Ghio, Linda Rousova, Dilyara Salakhova, Germán Villegas-Bauer
Published: March 17, 2023
Series: IMF Working Papers
DOI: https://doi.org/10.5089/9798400233937.001

Paper investigates whether volatility in MMF flows during the March 2020 market turmoil was driven by investors’ liquidity needs related to derivative margin payments.
During the March 2020 market turmoil, euro area money-market funds (MMFs) experienced significant outflows, reaching almost 8% of assets under management.
Authors: Maddalena Ghio, Linda Rousova, Dilyara Salakhova, Germán Villegas-Bauer.
Date: March 17, 2023.

Constructed a daily fund-level panel dataset spanning from February to April 2020.
Combined three highly granular unique data sources:
- EMIR data for derivatives.
- SHSS data for investor holdings of MMFs.
- Refinitiv Lipper data for daily MMF flows.
Estimated effects of variation margin paid and received by the largest holders of EUR-denominated MMFs on flows of these MMFs.

Variation margin payments faced by some investors holding MMFs were an important driver of the flows of EUR-denominated MMFs domiciled in euro area.
The analysis links investor-level derivative margin payments (variation margin) to fund-level redemption dynamics during the stress episode.

Asset and liability management, Derivative markets, Financial institutions, Financial markets, Liquidity, Mutual funds, Nonbank financial institutions, Pension spending, Stocks.
Keywords include: big data; derivative margin calls; Derivative markets; derivatives reform; EUR-denominated MMFs; Global; IMF working paper research Department; interconnectedness; Liquidity; liquidity risk; margin payment; MMF flow; money market funds; Mutual funds; non-bank financial intermediaries.; Nonbank financial institutions; Pension spending; Stocks; variation margin payment; VM flow.

Source: Derivative Margin Calls: A New Driver of MMF Flows (IMF Working Paper No. 2023/061).