- BCBS-CPMI-IOSCO call for interested parties to comment on ten policy proposals which aim to improve central clearing participants’ understanding of initial margin calculations and potential future margin requirements.
- The report proposes that central counterparties (CCPs) should provide additional public disclosures on their margin models and increase the sophistication and accessibility of margin simulation tools.
- Clearing members should provide greater transparency to clients and the CCPs of which they are members.
The Basel Committee on Banking Supervision (BCBS), the Bank for International Settlements’ Committee on Payments and Market Infrastructures (CPMI) and the International Organization of Securities Commissions (IOSCO)jointly published a consultative report Transparency and responsiveness of initial margin in centrally cleared markets – review and policy proposals.
The ten policy proposals in the report aim to increase the resilience of the centrally cleared ecosystem by improving participants’ understanding of CCPs’ initial margin calculations and potential future margin requirements.
The proposals cover:
- CCP simulation tools: Margin simulation tools with certain minimum functionality should be made available by CCPs to clearing members and their clients.
- CCP disclosures: CCPs should disclose additional information related to their margin models including on anti-procyclicality tools. CCPs should also report certain public quantitative disclosure elements in a more timely and frequent manner.
- Measurement of initial margin responsiveness: To facilitate the monitoring of margin requirements by clearing members and their clients, CCPs should disclose a standardixed metric for measuring initial margin responsiveness.
- Governance frameworks and margin model overrides: CCPs should implement enhanced analytical and governance frameworks for margin models. When CCPs use discretion to override model margin requirements, this should be done within a publicly disclosed analytical and governance framework.
- Clearing member transparency: Clearing members should provide greater transparency to their clients and the CCPs of which they are members. Additionally, they should develop enhanced analytical frameworks for assessing margin responsiveness when passing on margin calls to clients.
In an emailed statement, Jo Burnham, risk and margining expert at OpenGamma, said: “This joint report from the BCBS and CPMI underscores the pivotal role margin optimization will play in reshaping risk management in 2024. As market participants navigate the inherent complexities of both cleared and non-centrally cleared markets, putting a greater emphasis on margin analytics must be a strategic imperative.
“Only by deploying more sophisticated strategies to streamline collateral use, net exposures, and embrace risk-based margining, can financial institutions fully align with the report’s vision for a consistent and effective approach across global markets.
“In this era of heightened investor scrutiny, proactive margin optimization not only fortifies resilience but also aligns with the increasing need for financial institutions to strike the delicate balance between risk mitigation and capital efficiency.”