The Basel Committee on Banking Supervision (BCBS), Committee on Payments and Market Infrastructures (CPMI) under the Bank for International Settlements (BIS), and the International Organization of Securities Commissions (IOSCO) have jointly published three final reports on initial and variation margin in centrally cleared and non-centrally cleared markets. The documents contain proposals that aim to “improve transparency, streamline margin processes and increase the predictability of margin requirements”.
The reports are part of a work programme jointly run by the BCBS, CPMI, IOSCO, and Financial Stability Board (FSB). They are a follow-up on the review of margining practices published by BCBS, CPMI, and IOSCO in 2022, which identified areas for further work. They include “Transparency and responsiveness of initial margin in centrally cleared markets – review and policy proposals”; “Streamlining variation margin in centrally cleared markets – examples of effective practices”; and “Streamlining variation margin processes and initial margin responsiveness of margin models in non-centrally cleared markets”.
Read up
The first report, “Transparency and responsiveness of initial margin in centrally cleared markets – review and policy proposals”, sets out 10 policy proposals that “aim to increase the resilience of the centrally cleared market ecosystem in times of market stress”. The policies cover CCP transparency, governance, and review of margin models, as well as clearing member transparency.
The second, “Streamlining variation margin in centrally cleared markets – examples of effective practices”, draws out eight effective practices for meeting the standards set by the Principles for Financial Market Infrastructures. These practices “aim to enhance market participants’ liquidity preparedness for above-average variation margin calls through increased transparency and the efficient collection and distribution of variation margin in centrally cleared markets”.
The last, “Streamlining variation margin processes and initial margin responsiveness of margin models in non-centrally clesred markets”, sets out eight recommendations to participants in non-centrally cleared markets “to encourage widespread implementation of good market practices”. These practices are related to variation margin processes and the responsiveness of initial margin models.
Comprehensive approach
The reports are complemented by the “Liquidity preparedness for margin and collateral calls” published by FSB under the same work programme.
The BIS recommends that these reports be read together to form a comprehensive approach to “improving transparency, streamlining margin processes, increasing the predictability of margin requirements, and improving the liquidity preparedness of non-bank market participants for margin calls”.