Market Volatility - Margin Calls: Investors' Rights, Remedies and Potential Claims

This post is the first in a series concerning the legal implications for investors of market volatility under English law governed transactions. Across the series, we will examine investors' and counterparties' rights, remedies and potential claims when markets get choppy. First, we look at one of the key impacts of volatility: namely, the increased likelihood of margin calls across different asset classes and financial products.  

Volatility 

Following the US administration’s introduction of new import tariff policies in April 2025, there were steep drops in equity and bond markets. More volatility followed in October 2025 when the VIX index - Wall Street's so-called ‘Fear Gauge’ - spiked to 25 points. It spiked again to over 20 points in mid-January 2026, after further tariff threats by the US administration.  

For example, the Financial Times reported on 4 April 2025 that hedge funds were being hit with the:

“steepest margin calls since the 2020 Covid crisis”.^[1] 

Sources within investment banks’ prime brokerage teams also revealed that they had convened emergency teams given the mounting margin calls.^[2] As always, the most significantly impacted investors were those with leveraged and collateralised portfolios. 

Margin calls

To recap, a margin call occurs where one party is required to post additional cash or securities (the ‘margin’) on demand (the ‘call’) to cover the counterparty’s exposure to changes in the value of an underlying reference asset (or perhaps more typically, a pooled portfolio of assets). Typically, the terms of the parties’ relationship require that such exposure should remain collateralised within contractually pre-determined levels. In many cases, the contractual framework will be documented on ISDA terms, but for non-ISDA positions, margin calls may be provided for under any sort of leveraged financing arrangement where the contractual terms permit such demands for cash or securities. For simplicity, the following discussion focuses on margin calls under ISDA positions, but the general principles applicable to the operation of margining arrangements are likely to be similar in other frameworks.

Margin calls under ISDA positions

Under positions governed by an ISDA Master Agreement, margin calls may be made on portfolios that elect to use the Credit Support Annex. Typically, each counterparty's portfolio comprises a number of over-the-counter (“OTC”) derivatives trades, each individually documented by a Confirmation. Those Confirmations are governed by an umbrella ISDA Master Agreement. It is axiomatic that every individually documented trade Confirmation forms but one part of a single, overarching agreement. 

Where the parties have elected to include credit support as part of the overall transaction, the ISDA Master Agreement typically incorporates and is supplemented by the (English law) Credit Support Annex. Under the single agreement principle, the Annex therefore applies to all of the trades which have been entered into. In turn, this means that the parties’ live positions under those trades are netted together so that an aggregate exposure is arrived at for margining purposes. Under the Credit Support Annex, margining is referred to as margin collateral ‘delivery’ or ‘return’ obligations (i.e. effectively the ‘giving’ or ‘taking’ of security). 

The most common type of CSA used in English law governed transactions is the 1995 version (“CSA”). The CSA enables the parties to exchange collateral, with the typical intention being to collateralise the credit risk of the counterparty, thereby protecting the institutional counterparty in its dealings with the investor. The quantum of the collateral that is exchanged is linked to each party’s exposure to the underlying positions in the relevant trades governed by the ISDA Master Agreement. Unless agreed otherwise, the collateral is delivered to the party that is ‘in the money’ on the underlying positions on the relevant valuation dates. The delivery of the collateral therefore mitigates the credit risk of the counterparty where a close-out occurs. As with other forms of transactions that use margin calls, market volatility can lead to large and sudden increases in the amount of collateral required (and demanded). It is important to note that the CSA does not create security over the collateral transferred, but instead operates as an outright title transfer (see paragraph 5 of the CSA).

In 2016, ISDA updated and released a new ‘Credit Support Annex (Variation Margin)’, or ‘VM’ (“CSA (VM)”). This newer CSA (VM) does not have retrospective effect, and so many open trades are still governed by the CSA. While there are some differences between the two CSAs, for present purposes the core obligations on the Valuation Agent (as defined) effectively remain the same. 

Aged margin calls

For investors who have faced significant margin calls across their portfolios during previous periods of market volatility, there may have been little time or limited practical ability to challenge the calculation agent’s demand for margin contemporaneously.

Indeed, for any margin calls made at the peaks of the volatility in 2025 (or even earlier in 2026), there may now be little scope for investors to challenge the validity of any suspect margin calls made, if the portfolios in question remain live and were not closed out due to the suspect margin call(s). This is because under either ISDA or typical non-ISDA documentation, the time period to challenge margin calls—for example, on the basis that a calculation agent has made an invalid determination—is usually very short, measured in single business days (see, for example, clause 4(a) of the CSA (VM)). 

If margin calls have gone unchallenged, it may well be the case that an investor has: (i) failed to exercise its express contractual rights in time; (ii) waived its contractual rights to challenge the determination; and/or (iii) may be estopped from raising a challenge now. This includes in circumstances where the investor disagreed with the collateral valuation giving rise to the margin call, but nonetheless ultimately consented to the demand, to avoid the risk of triggering a default or close-out. With that said, if any margin calls were disputed at the time and the investor expressly reserved its rights, that is evidence that may assist in bringing a future challenge, in circumstances where losses can be proven. 

In our next post, we will examine forward-looking strategies to challenge live margin calls if the market experiences further volatility in 2026, which appears likely given the recent spike in the VIX index and ongoing geopolitical tensions. Indeed, the current heavy volatility in precious metals prices has caused the CME Exchange to increase margin requirements for market participants.