On November 6, 2020, ISDA submitted a response to a consultation by the Prudential Regulation Authority (PRA) on the calculation of risks not in value at risk (VAR) and stressed VAR.
Market volatility related to the COVID-19 outbreak has highlighted elements of the market risk framework that may lead to an excessively procyclical increase in own funds requirements during periods of stress. For two of those elements (frequency of calculation for the risks-not-in-VAR measure and identification of a ‘period of significant financial stress relevant to the institution’s portfolio’ for the stressed VAR calculation), the PRA proposes to set expectations that are intended to attenuate the procyclicality in own funds requirements for market risk.
The industry commends the PRA’s timely actions throughout 2020 to provide support and guidance to firms during the period of severe market volatility caused by COVID-19, although there is concern that the proposals in this consultation may lead to overly burdensome operational complexities without the desired outcome of reducing the volatility of market risk capital requirements during a crisis period.
Documents (1) for Consultation Response on Risks Not in VAR and Stressed VAR
Latest
ISDA AGM Studio: Emmanuel Geinoz and Eleanor Kelly
Five jurisdictions went live with revised derivatives reporting rules in 2024, with more to follow in 2025 and beyond, putting reporting teams under extreme pressure to implement accurately and on time to avoid regulatory penalties. Emmanuel Geinoz, market infrastructure and...
ISDA AGM Studio: Tyler Wellensiek, Stephen Berger
The first phase of the Securities and Exchange Commission’s Treasury clearing mandate will come into effect in December 2026 – a requirement that will have a significant impact on both US and non-US market participants. Tyler Wellensiek, ISDA board member...
ISDA AGM Studio: Jacques Vigner, BNP Paribas
Jacques Vigner, ISDA board member and chief strategic oversight officer for global markets at BNP Paribas, speaks with Mark Gheerbrant, global head of risk and capital at ISDA, on the key obstacles to a consistent, risk-appropriate capital framework and how to...
ISDA AGM Studio: Future Leaders in Derivatives
Following publication of the latest whitepaper from the ISDA Future Leaders in Derivatives (IFLD) program, Collateral and Liquidity Efficiency in the Derivatives Market: Navigating Risk in a Fragile Ecosystem, Joel Clark talks to IFLD participants Koen Ottenheijm, senior treasury and...