BCBS, CPMI and IOSCO Request Comment on Margin Practices Report
The Basel Committee on Banking Supervision ("BCBS"), the Committee on Payments and Market Infrastructures ("CPMI") and IOSCO jointly requested comment on a consultative report, which examines margin calls during the high market volatility of March 2020.
In the report, the regulators surveyed (i) central counterparties ("CCPs"), (ii) clearing members and broker-dealers, (iii) other relevant active market participants and (iv) regulatory authorities. They looked at a variety of margining practices for both cleared and bilateral transactions, finding, among other things, that:
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Variation Margin. Daily CCP variation margin ("VM") calls increased from an average of $25 billion to a peak of $140 billion.
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Initial Margin. Total initial margin ("IM") requirements increased by $300 billion and excess collateral increased by $115 billion, for an overall increase of $415 billion in collateral held at CCPs. Market volatility accounted for most of the IM requirements' increase; changes in volumes and risk positions accounted for less.
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Transparency of margin practices. IM models vary across CCPs and jurisdictions, but most tools can calculate margin requirements for existing portfolios and some tools can calculate margin requirements under "what if" scenarios.
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Preparedness of market participants. Intermediaries (i) were "relatively unaffected" by margin changes, (ii) did not have to change counterparty margin call procedures and (iii) avoided fire selling of assets by clients.
The regulators seek input on: (i) increased transparency in centrally cleared markets; (ii) enhanced liquidity preparedness and disclosures; (iii) identification of regulatory data gaps; (iv) how to most efficiently collect and distribute VM as a way to prepare market participants for large VM calls; (v) the responsiveness of CCP models to volatility in order to establish whether there should be baseline expectations as to procyclicality and (vi) the timeliness of internal models to incorporate market stress.
Comments on the report must be submitted by January 12, 2022.