FIA has responded to a consultation by the Basel Committee on Banking Supervision (BCBS), Committee on Payments and Market Infrastructures (CPMI), and the International Organization of Securities Commissions (IOSCO) on the impact of market volatility in 2020 on central counterparties and initial margin requirements.
In the response, FIA noted four key recommendations:
• Reducing the procyclicality of margin models
• Increasing transparency into margin model calculations
• Improving the tools provided by CCPs for forecasting margin requirements
• Encouraging more consistency in intraday margin calls for predictability
“We acknowledge that anti-procyclicality measures may lead to higher margin requirements for some products and some market participants (clearing members and their clients),” FIA wrote in its response. “We therefore have sought to strike a balance in our recommendations. We are not calling for an across-the-board increase in margin. Instead, we are calling for appropriate coverage for risk through the cycle. A margin model that generates margin requirements that are too low during periods of calm effectively exposes market participants to extreme movements when volatility spikes.”
