The International Swaps and Derivatives Association (ISDA), together with the Institute of International Finance (IIF) responded last year to the consultative paper on margin practices (the Response). Back then there were some issues that we acknowledged but could not develop further in the time available.
This paper provides some additional thoughts on these topics. In addition, we also address some discussions within industry over the last year.
In summary, we cover:
Intraday variation margin (VM) collection practices: We consider the potential costs and benefits of CCPs paying out intraday margin, and note that there are pros and cons that need to be discussed with participants in each market.
Measurement of procyclicality: To support comparability between models, measurement of procyclicality should be easy to implement and to understand.
Governance considerations around anti-procyclicality (APC) tools: We flag the importance of governance of anti-procyclicality (APC) tools.
Notice for margin rate increases: We consider whether CCPs can provide advance notice of margin rate changes, especially if the use VaR models.
Forward-looking margin transparency: We propose simple scenarios as a basis for forward-looking margin simulators.