Financial markets have never felt more unpredictable. From surprise policy announcements and elections, to geopolitical tensions and unexpected interest rate hikes, volatility is becoming the norm.

In this environment, managing liquidity reactively simply isn’t enough, and firms that only plan for today’s margin and collateral requirements are putting themselves at risk. Tomorrow’s crisis can hit without warning, and when it does, you need to understand your exposures, capital needs, and collateral capacity in real time.

That’s why forward-looking stress testing is no longer a “nice to have”, but a “must-have”, especially when it comes to margin and collateral. And yet, most firms still aren’t doing it.

Let’s break down why that is, and what you can do about it.

Margin and collateral stress testing: a blind spot for many firms

Stress testing is nothing new in financial services. Most firms have ways to simulate how their P&L would react to different market shocks; whether that’s a crash in equity markets, a spike in interest rates or widening credit spreads.

But when it comes to margin and collateral, the same level of stress testing just doesn’t happen. Why? Because it’s much harder.

Calculating how a stress scenario would affect your variation margin, initial margin and collateral requirements involves more than just shifting market curves. It means understanding how different models behave, how eligibility and constraints change, and how these moving parts interact under pressure.

It’s complex, but also essential.

There’s a clear shift happening in the industry, from managing liquidity reactively to planning proactively. And regulators are paying attention.

• In the UK, the PRA’s CP19/24 introduces more granular liquidity reporting from 2026, including under stress scenarios.
• The FSB has highlighted 8 policy recommendations for global regulators in its 2024 report on Liquidity Preparedness for Margin and Collateral Calls.
  

At the same time, we’re seeing real-world examples where margin and collateral stress have triggered wider instability. Take the UK’s LDI crisis in 2022, for example. When gilt prices plummeted, pension funds faced massive margin calls, prompting intervention from the Bank of England to prevent a self-reinforcing collapse.

Or, the US Treasury “dash for cash” sell off in 2020, triggered by the global COVID-19 pandemic that resulted in the Federal Reserve purchasing large amounts of Treasuries to restore market liquidity.

A close parallel in APAC came during the sharp moves in Japanese government bond yields in 2022–24, which forced the Bank of Japan into repeated large-scale operations and changes to its Yield Curve Control framework to prevent disorderly price action and mounting stress for domestic institutional investors.

These events, and the regulatory response to them, are creating strong tailwinds for stress testing in this space. Margin and collateral resilience is no longer just about meeting today’s obligations, but preparing for tomorrow’s shocks.

1. Multiple Margin Models

There are hundreds of margin models in use, and they vary depending on the product, asset class, clearing house or counterparty.

• Exchange-traded derivatives alone involve 100+ exchanges.
• Cleared OTC trades have their own methodologies.
• Uncleared OTC products bring in SIMM, GRID, or bespoke bilateral models.

Models are updated regularly – LCH and CME updated their cleared rates models 8 times in 2025 – and may be black-boxed, meaning even replicating them internally is a challenge.

2. Complex Collateral Rules

Collateral isn’t just about how much, it’s about what you can post and under what conditions.

• Asset eligibility and concentration limits
• Haircuts and thresholds
• Minimum transfer amounts
• Rehypothecation rights
• Counterparty credit and wrong-way risk

And that’s before you consider where your assets physically are; in custody, rehypothecated, or already pledged elsewhere. Transparency and control are often lacking and can be challenging to achieve around transparency, predictability, and holistic liquidity management.

Initial Margin

Perhaps the hardest to predict, but potentially the most impactful. IM is based on future exposure, calculated using models that often behave unpredictably in stressed scenarios. A favourable VM move doesn’t guarantee lower IM. In fact, IM can rise even as your exposure appears to fall. 

Variation Margin

This is the most immediate and visible pressure point, tracking the mark-to-market profit and loss of your derivative positions.

In a market shock, VM calls can spike sharply and may even occur intraday, especially with OTC clearers. If you’re not prepared with enough available cash or collateral, you could face liquidity shortfalls quickly.

Collateral

As markets move, so does the value of your posted collateral. A drop in value means a potential eligibility breach or a need to top up.

More complex stress scenarios, such as a downgrade of a collateral asset, can simultaneously reduce its value and make it ineligible, compounding the challenge.

True liquidity resilience comes from being able to forecast your capital and collateral requirements, not just in steady markets, but under a range of stress scenarios. That means

• Simulating how your margin and collateral will react
• Identifying potential shortfalls before they materialise
• Exploring trade moves to reduce margin requirements
• Optimising which assets to post, based on future needs

These are critical for staying within risk limits, meeting obligations and taking advantage of market moves, even in times of stress.

With Cassini, you can:

Centralise margin and collateral across the business with a unified platform

• Run intraday margin calculations to reflect real-time portfolios
• Design and run flexible stress tests, across single or multiple risk factors
• Forecast margin requirements under normal and stressed scenarios
• Run what-if simulations to understand the impact of trade decisions
• Optimise collateral usage based on your specific constraints and inventory

Whether it’s a rate hike, cyberattack, or geopolitical shock, stress testing with Cassini helps you prepare, not just react. To find out more about our services, get in touch with our team today.