The March 2022 Senior Credit Officer Opinion Survey on Dealer Financing Terms collected qualitative information on changes in credit terms and conditions in securities financing and over-the-counter (OTC) derivatives markets. In addition to the core questions, the survey included a set of special questions about the potential effects of hypothetical future changes in the interest rate environment on the price and nonprice terms of financing offered by dealers and on the demand for funding from different types of clients. The special questions also asked about how different classes of clients are positioned for such changes. The 23 institutions participating in the survey account for almost all dealer financing of dollar-denominated securities to non-dealers and are the most active intermediaries in OTC derivatives markets. The survey was conducted between February 8, 2022, and February 22, 2022. The core questions asked about changes between December 2021 and February 2022.
With regard to the credit terms applicable to, and mark and collateral disputes with, different counterparty types across the entire range of securities financing and OTC derivatives transactions, responses to the core questions revealed the following:
- Price and nonprice terms on securities financing transactions and OTC derivatives were generally unchanged across all classes of counterparties (see the exhibit "Management of Concentrated Credit Exposures and Indicators of Supply of Credit").
- A small fraction of respondents indicated that resources and attention devoted to managing concentrated credit exposure to central counterparties and other financial utilities increased somewhat. More than one-half of dealers indicated that changes in central counterparty practices have affected, at least to a minimal extent, the credit terms they offer to clients on bilateral transactions that are not cleared.
- Approximately one-fourth of dealers, on net, reported that the volume of mark and collateral disputes increased over the past three months for hedge funds; about one-fifth reported an increase for dealers, mutual funds, exchange-traded funds, pension plans and endowments, and insurance companies; and a small fraction reported an increase for nonfinancial corporations. On net, dealers reported little change in the duration and persistence of mark and collateral disputes with all client types.
With regard to OTC derivatives markets, responses to the core questions revealed the following:
- Approximately one-fourth of dealers reported an increase, on net, in the volume of mark and collateral disputes over the past three months for foreign exchange and equity derivatives, and a small fraction of respondents reported an increase, on net, for credit referencing corporates, credit referencing securitized products, and interest rate derivatives. The duration and persistence of mark and collateral disputes remained unchanged on net.
With respect to securities financing transactions, respondents indicated the following:
- For most asset classes, terms under which various types of securities are funded remained largely unchanged. About one-fifth of respondents, on net, indicated easing of collateral spreads for commercial mortgage-backed securities (CMBS) for both average and most-favored clients. For high-yield corporate bonds, a small fraction of respondents, on net, indicated tightening of collateral spreads for both average and most-favored clients.
- On net, about one-fifth of dealers reported increased demand to fund CMBS, and a similar net fraction reported increased demand for term funding of CMBS.