Basel Committee Seeks Feedback on Margin in Cleared Markets
Posted by Colin Lambert. Last updated: January 17, 2024
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) have jointly published a consultative report and are inviting comments from interested parties.
The deadline for feedback is 16 April 2024. The report, Transparency and responsiveness of initial margin in centrally cleared markets – review and policy proposals, contains 10 policy proposals aimed, the institutions say, at increasing 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, namely margin simulation tools with certain minimum functionality should be made available by CCPs to clearing members and their clients. CCPs should disclose additional information related to their margin models including on anti-procyclicality tools, and report certain public quantitative disclosure elements in a more timely and frequent manner.
To facilitate the monitoring of margin requirements by clearing members and their clients,the proposals state that CCPs should disclose a standardised metric for measuring initial margin responsiveness – they should also 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, it adds.
Clearing members should also provide greater transparency to their clients and the CCPs of which they are members, the report adds, noting they should also develop enhanced analytical frameworks for assessing margin responsiveness when passing on margin calls to clients.
In addition to this report, the institutions say there will be two further upcoming reports, a BCBS-IOSCO report Streamlining VM processes and IM responsiveness of margin models in non-centrally cleared markets and a CPMI-IOSCO report Streamlining variation margin in centrally cleared markets – examples of effective practices.
The Financial Stability Board (FSB) is also conducting work to develop high-level, cross-sectoral policy proposals on non-bank market participants’ liquidity preparedness to meet margin and collateral calls. The FSB will publish a consultative report in the first half of 2024.