FIA has responded to a consultation published by the European Securities and Markets Authority (ESMA) seeking input on the current calibration of the antiprocyclicality tools, and whether proposed revisions to existing Regulatory Technical Standards (RTS) may be necessary.
In its response, FIA noted that tools intended to limit procyclicality can help prevent margin requirements from falling too low during periods of low volatility and thus, help manage the liquidity constraints that sometimes occur when markets are highly volatile. FIA is generally supportive of ESMA tools, and of a coordinated global response to address margin anti-procyclicality “with enhanced transparency that should accompany these tools to make them successful.”
FIA has been a longstanding advocate for robust margin at central counterparties that lessens, where possible, procyclical impacts. In October 2020, FIA issued a paper reflecting on the lessons learned from the market turmoil in the spring of 2020, which highlighted the role that steep and rapid increases in CCP initial margin requirements played in creating and exacerbating stress in the market.
