Results of the September 2026 survey on credit terms and conditions in euro-denominated securities financing and OTC derivatives markets (SESFOD)

What changed in credit terms and conditions during the June–August 2026 survey period?

Credit terms describe how easily and on what conditions financial institutions lend, finance trades, or transact with counterparties. During June to August 2026, overall terms eased slightly for all counterparty types. This extended easing seen in the previous three survey rounds and suggested somewhat more accommodating market conditions.

The main change was in price terms, such as financing costs or spreads. Non-price terms eased slightly for banks and dealers, tightened slightly for hedge funds, and stayed unchanged for other counterparties. Some respondents linked easier prices to market liquidity, competition, and counterparty financial strength.

Respondents expected another slight overall easing during the following three months. Hedge funds used slightly more leverage, while the volume and persistence of counterparty valuation disputes were unchanged. The period still involved uncertainty from the Middle East conflict and volatile energy prices.

What is the SESFOD survey, and what financial markets does it cover?

SESFOD is the ECB’s survey on credit terms and conditions in euro-denominated securities financing and over-the-counter derivatives markets. It gathers qualitative information on whether financial institutions are making trading, lending, and collateral arrangements easier or harder. This matters because credit terms can reveal changing risk appetite, market liquidity, and access to funding.

The survey covers securities financing transactions, where funding is secured by collateral such as equities, government bonds, corporate bonds, or asset-backed securities. It also covers non-centrally cleared OTC derivatives, including foreign exchange, interest rate, equity, commodity, and credit derivatives.

The September 2026 survey examined changes during June to August 2026. It asked about price and non-price terms, funding demand, financing rates, haircuts, initial margins, exposures, maturities, liquidity, and valuation disputes. The results provide a broad view of conditions across these financial markets.

How large was the survey, and how often is it conducted?

The September 2026 SESFOD survey was based on responses from 26 large banks. Fourteen respondents had their headquarters in the euro area, while 12 had headquarters outside the euro area. This gives the survey a broad institutional perspective, although it represents the views of participating banks rather than every market participant.

SESFOD is conducted four times each year. Its reference periods end in February, May, August, and November. The September 2026 round collected qualitative information about changes between June and August 2026, matching the three-month period reviewed in the release.

The regular schedule helps track whether credit conditions are easing or tightening over time. In this round, the fourth consecutive quarter of slight overall easing was recorded. Respondents also gave expectations for the next three months, providing an early indication of the direction they anticipated.

What happened to demand for securities financing rates, and haircuts for different types of collateral?

Securities financing lets counterparties obtain funding against pledged assets. In the survey, demand for funding secured against most collateral types increased, led by equities. A net 27% of respondents reported higher demand for equity-backed funding, showing that this collateral category stood out from the others.

Financing rates and spreads increased for most-favoured clients across all collateral types. For average clients, increases were narrower and affected domestic government bonds, other government bonds, and convertible securities. At the same time, haircuts decreased for most bond collateral types and for asset-backed securities. A lower haircut means less collateral is required for a given amount of funding.

The maximum amount and maturity of funding also increased for some collateral types. Central-counterparty use changed only slightly and in mixed directions. Liquidity and market functioning deteriorated slightly for equities and several corporate bond types.

What are a haircut and an initial margin, and how are they different?

A haircut is a percentage reduction applied to collateral’s recognized value. If an asset is worth 100 but receives a 10% haircut, the lender may treat it as worth 90 for funding purposes. Haircuts protect against possible falls in collateral value or difficulty selling it. The article reports that haircuts decreased for most bond collateral and asset-backed securities.

Initial margin is collateral posted when entering a derivatives transaction or position. It is intended to cover potential future losses during the time needed to close or replace a trade after a counterparty default. It is different from a haircut, which discounts the value of collateral supporting funding.

The survey found slight decreases in initial margin requirements for foreign exchange, interest rate, equity, and several credit derivatives. Thus, haircuts relate to collateral valuation in securities financing, while initial margin relates to future exposure on derivatives.

What are non-centrally cleared OTC derivatives, and why did valuation disputes increase for some of them?

Non-centrally cleared OTC derivatives are privately negotiated financial contracts traded over the counter rather than processed through a central counterparty. They can reference foreign exchange, interest rates, equities, commodities, or credit. Because the contracts are negotiated directly, counterparties must calculate values, collateral, and exposures between themselves.

A valuation dispute occurs when counterparties disagree about what a derivative or related exposure is worth. The survey found that both the volume and the duration and persistence of disputes increased for several derivative types, particularly credit derivatives. Disputes also increased for foreign exchange derivatives.

The release does not identify a specific reason for the increase, so no cause can be established from the article. It reports that initial margins declined slightly for several derivative categories, while maximum exposures and trade maturities were broadly unchanged. Liquidity deteriorated for equity and commodity derivatives.

Why do banks require collateral, haircuts, and margin when lending or trading with counterparties?

Banks require collateral because lending and trading create the risk that a counterparty will not meet its obligations. An asset pledged as collateral gives the bank a source of value if repayment fails. This protection matters especially when markets are uncertain or collateral prices can move quickly.

A haircut adds a safety buffer by valuing collateral below its market price. Margin provides collateral against current or potential future losses, including exposures arising from derivatives. These safeguards reduce the amount a bank could lose if it must close a position or sell pledged assets after a default.

The survey shows how these protections change with market conditions. Haircuts decreased for most bond collateral and asset-backed securities, while initial margins declined slightly for several derivatives. The same survey found increased valuation disputes for several derivatives, particularly credit derivatives, highlighting continuing counterparty risk.

Key Facts:

📌 Overall credit terms eased slightly for all counterparty types.

📌 Price terms drove most of the easing.

📌 Respondents expected further slight easing over the next three months.

📌 SESFOD covers euro-denominated securities financing and OTC derivatives markets.

📌 The survey measures changing credit terms and conditions.

📌 The September survey covered changes from June through August 2026.

📌 The survey received responses from 26 large banks.