Featured Product

    ESRB Presents Policy Options on Margins and Haircuts for Derivatives

    January 09, 2020

    ESRB published a report on mitigating the procyclicality of margins and haircuts in derivatives markets and securities financing transactions. The report provides new analysis and sets out possible policy options to address systemic risks arising from the procyclicality associated with margin and haircut practices. ESRB is mindful that the implementation of these policy options would require further work and engagement with market participants and international fora. This report expands on the work of the 2017 report on the macro-prudential use of margins and haircuts.

    ESRB is now placing greater emphasis on policy options aimed at reducing liquidity strains during times of market stress than on those that constrain the build-up of leverage during boom. The policy options in consideration are as follows:

    • Pass-through, by central counterparties, of any intraday variation margin collected in the course of the same day
    • Introduction of initial margin floors in both centrally and non-centrally cleared derivatives markets
    • Reduction of risks of procyclicality in client clearing by limiting the discretion of client clearing service providers toward their clients
    • Introduction of adequate notice periods to changes in collateral haircuts and eligibility
    • Introduction of a cash collateral buffer for market participants active in centrally and non-centrally cleared derivatives markets
    • Mandatory use of initial and variation margins as risk mitigation techniques in non-centrally cleared securities financing transaction markets

    ESRB intends to perform further work to analyze the functioning and impact of these policy options. This could include an assessment of the policy options (potentially using new data sources), analysis of any side effects they may have, and a further assessment of interaction between the options and the existing regulations. Four of the options identified—the mandatory pass-through of intraday variation margin, initial margin floors, the strengthening of client clearing, and guidance on notice periods—would require changes to the regulatory framework for centrally cleared and non-centrally cleared derivatives. By contrast, introducing cash collateral buffers for entities engaging in derivatives transactions would require changes to the prudential rules that apply to banks, insurers, and other financial entities. The policy option on bilateral securities financing transactions, which is an extension of the globally agreed safeguards applied to derivatives transactions, would require the development of a new regulatory framework. In identifying these options, ESRB is mindful that further work and engagement with regulatory standard-setters and industry representatives is needed.

     

    Related Links

    Keywords: Europe, EU, Banking, Insurance, Securities, Procyclicality, Derivatives, Securities Financing Transactions, Systemic Risk, CCPs, Initial Margin, Variation Margin, Haircuts, ESRB

    Related Articles
    News

    UK Government to Set Out Rules on Wind-down of Critical Benchmarks

    HM Treasury notified that, after considering all responses, the government intends to bring forward further legislation, when the Parliamentary time allows, to address issues identified in the consultation on supporting the wind-down of critical benchmarks.

    May 07, 2021 WebPage Regulatory News
    News

    EIOPA Launches Stress Test for Insurance Sector in EU

    EIOPA launched the 2021 stress test for the insurance sector in EU.

    May 07, 2021 WebPage Regulatory News
    News

    UK Authorities Publish Third Edition of Regulatory Initiatives Grid

    UK authorities jointly published the third edition of Regulatory Initiatives Grid setting out the planned regulatory initiatives for the next 24 months.

    May 07, 2021 WebPage Regulatory News
    News

    EC Consults on Regulation on Non-Financial Sustainability Disclosures

    EC is requesting feedback on the proposed Commission Delegated Regulation on the content, methodology, and presentation of information that large financial and non-financial undertakings should disclose about their environmentally sustainable economic activities under the Taxonomy Regulation.

    May 07, 2021 WebPage Regulatory News
    News

    OSFI Outlines Prudential Policy Priorities for Coming Months

    OSFI has set out the near-term priorities for federally regulated financial institutions and federally regulated private pension plans for the coming months until March 31, 2022.

    May 06, 2021 WebPage Regulatory News
    News

    BIS Announces TechSprint on Innovative Green Finance Solutions

    Under the Italian G20 Presidency, BIS Innovation Hub and the Italian central bank BDI launched the second edition of the G20 TechSprint on the lookout for innovative solutions to resolve operational problems in green and sustainable finance.

    May 06, 2021 WebPage Regulatory News
    News

    ACPR Publishes Version 1.0.0 of RUBA Taxonomy

    ACPR published Version 1.0.0 of the RUBA taxonomy, which will come into force from the decree of January 31, 2022.

    May 06, 2021 WebPage Regulatory News
    News

    EBA Proposed Regulatory Standards for Central Database on AML/CFT

    EBA proposed the regulatory technical standards on a central database on anti-money laundering and countering the financing of terrorism (AML/CFT) in EU.

    May 06, 2021 WebPage Regulatory News
    News

    ECB Responds to EC Consultation on Crisis Management Framework

    ECB published its response to the targeted EC consultation on the review of the bank crisis management and deposit insurance framework in EU.

    May 06, 2021 WebPage Regulatory News
    News

    BCBS, CPMI, and IOSCO to Survey Market Participants on Margin Calls

    BCBS, CPMI, and IOSCO (the Committees) are inviting entities that participate in market infrastructures and securities markets through an intermediary as well as non-bank intermediaries to complete voluntary surveys on the use of margin calls.

    May 05, 2021 WebPage Regulatory News
    RESULTS 1 - 10 OF 6942