In a bid to help enhance the liquidity preparedness of market participants, the Basel Committee on Banking Supervision (BCBS), Bank for International Settlements’ Committee on Payments and Market Infrastructures (CPMI), and the International Organization of Securities Commissions (IOSCO) have published a report on streamlining variation margin in centrally cleared markets. The report outlined six areas for further policy work and eight examples of effective practices.
A part of the further policy work “has explored ways to foster market participants’ preparedness for above-average variation margin calls through the efficient collection and distribution of variation margin in centrally cleared markets”, wrote the report. The work also aimed to “understand the existing practices of CCPs and clearing members regarding the collection and distribution of centrally cleared variation margin”, and “present possible ways to improve centrally cleared variation margin call and collection processes”.
The effective practices were informed by three surveys issued by CPMI and IOSCO to the CCPs. Results suggested that CCPs “may not be fully implementing the existing guidance related to variation margin practices”. Thus, some of the eight recommendations included “increasing the predictability of intraday margin calculations and collections”, “giving participants sufficient time to manage the liquidity impact of an intraday call”, and “where allowed, practical and efficient, offsetting variation margin calls against other payment obligations, such as initial margin calls and product payment flows”.
