Featured Product

    BCBS and IOSCO Propose Further Policy Work on Margining Practices

    October 26, 2021

    Three global standard-setters launched a joint consultation that reviews the margining practices during the COVID-19 pandemic and identifies potential areas for further policy work. These global standard-setters are the Basel Committee on Banking Supervision (BCBS), the Committee on Payments and Market Infrastructures (CPMI), and the International Organization of Securities Commissions (IOSCO). The consultative report looks at margin calls in March 2020 and April 2020; margin practice transparency, predictability, and volatility across various jurisdictions and markets; and liquidity management preparedness of market participants. This consultation is part of the Financial Stability Board work program to enhance resilience of the non-bank financial intermediation sector. The comment period on this consultation ends on January 12, 2022.

    Based on surveys of central counterparties, clearing members and broker-dealers, clients and regulatory authorities, and other data analyses, the report finds that variation margin calls in both centrally and non-centrally cleared markets in March were large and significantly higher than in February 2020. The peak central counterparty variation margin call was USD 140 billion on March 09, 2020. The report also finds that initial margin requirements for centrally cleared markets increased by roughly USD 300 billion over March 2020 and varied substantially across, and within, asset classes. However, the initial margin requirements on non-centrally cleared derivatives remained relatively stable during the stress period. Drawing from this analysis, the report proposes six potential areas for further work to inform policy considerations:

    • Increasing transparency in centrally cleared markets. Further international work is proposed to explore consistent metrics and disclosures on procyclicality, responsiveness to volatility, and model performance. This work should also consider good practices with respect to the provision of tools and simulators. Additional work could also consider the role that disclosure of modeling choices by individual central counterparties could have in enhancing the understanding of, and comparisons among, the central counterparty model behavior. This further work should include exploration of improvements to the existing expectations for disclosures both to the clearing members and the public.
    • Enhancing liquidity preparedness of market participants and liquidity disclosures. Additional international work could identify ways to further enhance liquidity preparedness, including appropriate liquidity measures in the non-bank financial intermediation sector, and elucidate ways that clearing members can encourage and facilitate greater liquidity preparedness of clients. Work could include analysis of the non-bank financial intermediation sector liquidity arrangements and intermediaries’ provision of liquidity to clients, to facilitate the fulfilment of margin obligations, and the effectiveness of those arrangements during periods of extreme stress or volatility.
    • Identifying data gaps in regulatory reporting. Further international work is proposed to identify gaps in regulatory data at the jurisdictional level, in an effort to provide a more comprehensive picture of the preparedness of market participants for margin requirements. This work could consider what additional regulatory disclosures or data points could provide authorities with a fuller picture of the non-bank financial intermediation sector preparedness and intermediaries’ provision of liquidity to clients.
    • Streamlining variation margin processes in centrally and non-centrally cleared markets. Work is proposed to consider ways to foster preparedness of market participants for the large variation margin calls that can occur during market stress through efficient collection and distribution of variation margin and other means. Additional work is also proposed to identify good practices for variation margin collection and distribution by central counterparties.
    • Evaluating responsiveness of centrally cleared initial margin models to market stresses. Work is proposed to understand the degree and nature of central counterparty margin models’ responsiveness to volatility and other market stresses and to explore appropriate ways to analyze, compare, and set baseline expectations on procyclicality in various settings. Additional work could also review initial margin levels in non-stress times in the light of this responsiveness, including a review of the effectiveness of tools that lessen the procyclicality of margin models and the consistency of their use as well as the role of clearing members’ practices when passing on central counterparty margin calls to clients in dampening or amplifying the procyclicality of margin.
    • Evaluating responsiveness of non-centrally cleared initial margin models to market stresses. Work could look into the timeliness of mechanisms for taking into account stress periods in the calibration of internal models as well as the timely remediation of initial margin shortfalls and the level of disclosure regarding the performance of non-centrally cleared initial margin models.


    Related Links

    Comment Due Date: January 12, 2022

    Keywords: International, Banking, Securities, COVID-19, Margin Calls, Initial Margin, Variation Margin, CCP, NBFI, Disclosures, Derivatives, Reporting, Basel, BCBS, CPMI, IOSCO

    Featured Experts
    Related Articles

    EBA Proposes Standards for IRRBB Reporting Under Basel Framework

    The European Banking Authority (EBA) proposed implementing technical standards on the interest rate risk in the banking book (IRRBB) reporting requirements, with the comment period ending on May 02, 2023.

    January 31, 2023 WebPage Regulatory News

    FED Issues Further Details on Pilot Climate Scenario Analysis Exercise

    The U.S. Federal Reserve Board (FED) set out details of the pilot climate scenario analysis exercise to be conducted among the six largest U.S. bank holding companies.

    January 17, 2023 WebPage Regulatory News

    US Agencies Issue Several Regulatory and Reporting Updates

    The Board of Governors of the Federal Reserve System (FED) adopted the final rule on Adjustable Interest Rate (LIBOR) Act.

    January 04, 2023 WebPage Regulatory News

    ECB Issues Multiple Reports and Regulatory Updates for Banks

    The European Central Bank (ECB) published an updated list of supervised entities, a report on the supervision of less significant institutions (LSIs), a statement on macro-prudential policy.

    January 01, 2023 WebPage Regulatory News

    HKMA Keeps List of D-SIBs Unchanged, Makes Other Announcements

    The Hong Kong Monetary Authority (HKMA) published a circular on the prudential treatment of crypto-asset exposures, an update on the status of transition to new interest rate benchmarks.

    December 30, 2022 WebPage Regulatory News

    EU Issues FAQs on Taxonomy Regulation, Rules Under CRD, FICOD and SFDR

    The European Commission (EC) adopted the standards addressing supervisory reporting of risk concentrations and intra-group transactions, benchmarking of internal approaches, and authorization of credit institutions.

    December 29, 2022 WebPage Regulatory News

    CBIRC Revises Measures on Corporate Governance Supervision

    The China Banking and Insurance Regulatory Commission (CBIRC) issued rules to manage the risk of off-balance sheet business of commercial banks and rules on corporate governance of financial institutions.

    December 29, 2022 WebPage Regulatory News

    HKMA Publications Address Sustainability Issues in Financial Sector

    The Hong Kong Monetary Authority (HKMA) made announcements to address sustainability issues in the financial sector.

    December 23, 2022 WebPage Regulatory News

    EBA Updates Address Basel and NPL Requirements for Banks

    The European Banking Authority (EBA) published regulatory standards on identification of a group of connected clients (GCC) as well as updated the lists of identified financial conglomerates.

    December 22, 2022 WebPage Regulatory News

    ESMA Publishes 2022 ESEF XBRL Taxonomy and Conformance Suite

    The General Board of the European Systemic Risk Board (ESRB), at its December meeting, issued an updated risk assessment via the quarterly risk dashboard and held discussions on key policy priorities to address the systemic risks in the European Union.

    December 22, 2022 WebPage Regulatory News
    RESULTS 1 - 10 OF 8699