ISDA Response to Margin Transparency Consultation

On April 12, ISDA and the Institute of International Finance (IIF) responded to the Basel Committee on Banking Supervision (BCBS), Committee on Payments and Market Infrastructures (CPMI) and International Organization of Securities Commissions (IOSCO) consultation on transparency and responsiveness of initial margin in centrally cleared markets. The associations support enhancing transparency on cleared margin for all market participants, as it will benefit intermediary and end-user preparedness for margin calls and increase the resilience of the system overall.

In the response, both associations expressed support for enhancing transparency on cleared margin for all market participants, which will help with liquidity preparedness and increase resilience of the system, noting it should start with central counterparties (CCPs) making fundamental disclosures about their margin models. In this regard, both associations highlight their support in the response to recommendations one through eight.

Regarding recommendation nine, ISDA and IIF are supportive of clients having necessary transparency on clearing member (CM) margin requirements. As is recognized in the consultative report, enhanced transparency should not curtail the ability of CCPs or CMs to take risk management actions to respond to dynamic or idiosyncratic stress scenarios within the clearing ecosystem.

Regarding recommendation 10, both associations are generally supportive of the principle that CCPs should have visibility into the risk profile of their clearing participants. Any standardized transparency framework required by CCPs of CMs should be limited only to the information required for CCP risk management and should not raise legal, confidentiality, or competition concerns. The current information required under recommendation 10 does not meet these criteria.

One area where the consultative report should go further is on initial margin model responsiveness. Further work should be done on the fundamentals of CCP margin models, for example appropriateness of margin periods of risk and the calibration of anti-procyclicality tools, to ensure that margins do not fall too low during low volatility periods.

This response covers the positions of our members on the buy-side and sell-side. The paper does not reflect the views of many CCPs, and many of the CCPs are in disagreement with the views.

Tags:

,

Documents (1) for ISDA Response to Margin Transparency Consultation

Refreshing the FX Definitions

A lot has changed in the FX derivatives market since 1998, when the last set of standard definitions for FX transactions were published. Trading volumes have grown substantially, and average daily turnover has risen by six times. Market practices have...

ISDA & EMTA Publish New FX Definitions

ISDA and EMTA, Inc., the trade association for emerging markets, have jointly published a revised set of standard definitions for foreign exchange (FX) derivatives transactions, which update key market practices and consolidate various FX and FX-related product templates and provisions...

ISDA Position Paper on SFDR Review

On February 27, ISDA and the Association for Financial Markets in Europe (AFME) published a position paper on the European Commission’s (EC) proposed revisions to the Sustainable Finance Disclosure Regulation (SFDR 2.0). The paper welcomes the EC’s proposal as a...