A report by the Basel Committee on Banking Supervision and the International Organisation of Securities Commissions (BCBS-IOSCO) concludes the framework for uncleared margin rules (UMR) has been effectively implemented with no material issues found.
The BCBS-IOSCO verdict means the bilateral margin framework that emerged from six phases of implementation between 2016 and 2022 is now considered structurally sound for financial stability purposes.
With no changes proposed, the focus shifts to liquidity optimisation—particularly for pension funds and asset managers still processing last week’s Bank of England (BoE) stress test findings, which showed they could face £17-40 billion in gross variation margin calls during severe market stress.
In the same week, however, the BoE proposed exempting post-trade risk reduction transactions (PTRR) from the clearing obligation – a move that could deliver 5-15% improvement in risk optimisation outcomes for derivatives users. The BoE explicitly acknowledged that current clearing requirements for PTRR exercises force market participants to use complex swaptions instead of simpler bilateral swaps, which may deter smaller pension funds and asset managers from accessing these risk-reduction services.
As our story earlier this year noted, predictable CCP margin is key to investors using cash efficiently. Last week’s announcements provide regulatory stability on bilateral margins and new flexibility on risk reduction provides clarity for pensions and asset managers to optimise their collateral velocity, automate margin dispute resolution, and model liquidity gaps before the next stress event.
Background
The wide-ranging UMR took effect in the US and EU in September 2022 for asset managers and pension funds. Margin requirements for derivatives transactions that would remain uncleared were designed to reduce counterparty risk by ensuring that collateral is available to offset losses caused by a counterparty default in bilateral transactions.
On 15 January 2025, when the BCBS, IOSCO, and the BIS Committee on Payments and Market Infrastructures (CPMI) published final reports on initial and variation margin in centrally cleared and non-centrally cleared markets.
The reports address areas of further policy work identified in the 2022 BCBS-CPMI-IOSCO Review of margining practices as part of the policy responses coordinated by the Financial Stability Board (FSB) to the March 2020 “dash for cash” market turmoil. Together they are intended to be a comprehensive approach to improving transparency and improving the liquidity preparedness of non-bank market participants for margin calls. The FSB’s earlier final report on Liquidity Preparedness for Margin and Collateral Calls, published in December 2024, forms part of this work programme, and complements the BCBS, CPMI and IOSCO reports.
The final reports are:
BCBS, CPMI and IOSCO final report ‘Transparency and responsiveness of initial margin in centrally cleared markets – review and policy proposals’
CPMI and IOSCO final report ‘Streamlining variation margin in centrally cleared markets – examples of effective practices’
BCBS and IOSCO final report ‘Streamlining variation margin processes and initial margin responsiveness of margin models in non-centrally cleared markets’
