EACH has today responded to the ‘BCBS-CPMI-IOSCO consultative report on transparency and responsiveness of initial margin in centrally cleared markets’. We commend authorities for analysing the important and challenging issue of responsiveness of cleared initial margin, and appreciate the opportunity to contribute. We also welcome that the authorities are considering the need for adequate transparency across the full clearing value chain, from CCPs to Clearing Members (CMs) and from CMs to clients. We believe that it is crucial to ensure that any additional measures prescribed are also taken into account by CMs and Clients in their liquidity preparedness exercises.
The detailed answers can be read in our response here, and a summary of our main ideas is included below:
- Transparency – EACH believes that the level of transparency measures required from the CCPs at present are considered sufficient, as CCPs provide a wide range of measures from Margin simulators and PQDs to website disclosures and private disclosures to CMs and clients.
- Public Quantitative Disclosure (PQDs) – We emphasise that the information contained within PQDs is not portfolio specific and is backward-looking, making it unclear how this increase could be used for liquidity preparedness which is by nature forward-looking.
- Margin simulators – We are of the opinion that the main challenge consists in finding a balance between the cost of implementation and operating the simulation tool and the reliability of the results. EACH recommends against forward looking scenarios, which we do not believe provide meaningful added value to users, could put an undue liability on CCPs and will have significant implementation and maintenance costs. Additionally, CCPs note that margin simulators show very little use by CMs and clients.
- Measuring margin responsiveness – EACH highlights that using volatility as a way of measuring responsiveness has different limitations, such as it being not observable and it changes not fully capturing the drivers of margin procyclicality that are within CCPs' control. We suggest considering an alternative proposal, that focuses on analysing how initial margin would change under different market stress scenarios, namely historical periods of volatility. We recommend that the design of the approach is left to the CCPs, subject to CCPs internal policies and procedures standards.
- Measures on discretionary judgement by CCPs – We highlight that there may be events that will go beyond the circumstances covered by the CCP rulebook. For this, CCPs believe it is important for them to retain a degree of discretionary judgement.
