New regulations (eg Dodd-Frank legislation in the US) require banks and other financial institutions to trade many derivatives through exchanges instead of directly with other banks.

Exchanges make margin calls as rates move and valuations change. A problem with this approach is that exchange margin calculations are traditionally quite simple, but derivatives such as swaps require new approaches to the measurement of margins.

The Vector Risk calculation is a market risk (VaR) style measure of the potential loss (to a given confidence) for one day on a portfolio. It has the major advantage that it takes into account netting and natural offsets between the complex array of trades in a typical derivatives portfolio.

It can be adopted by exchanges and market participants as a formulaic but efficient (and safe) measure of the margin that should be held to cover not just current exposure, but potential exposure over the closeout period (typically one day).