Global policymakers are consulting on measures to enhance firms’ ability to meet margin calls in stressed markets.
In a joint paper, the umbrella group for global securities regulators, the International Organization of Securities Commissions (IOSCO), and the Bank for International Settlements’ Committee on Payments and Market Infrastructures (CPMI) launched a consultation on proposed best practices for variable margin processes and transparency between central counterparties (CCPs), trading firms, and their clients.
The consultation follows a series of industry surveys by regulators, which found that “CCPs may not be fully implementing the existing guidance” on variable margin practices.
It also stems from a review of margining practices that was carried out by IOSCO, the CPMI, and the Basel Committee on Banking Supervision in 2022. That review highlighted a number of potential vulnerabilities for policymakers to address — including work to ensure that firms are capable of dealing with higher-than-normal margin calls through “the efficient collection and distribution” of variable margin in centrally cleared markets.
The report aims to help enhance compliance with the guidance in this area, and improve margining processes, by detailing best practices.
Among other things, the consultation covers the treatment of excess collateral, CCPs transmitting variable margin, and transparency between CCPs, clearing firms and clients.
In January, the groups also published related reports on initial margin in centrally cleared markets, and margin models in non-centrally cleared markets.
The Financial Stability Board (FSB) is also aiming to publish its own report in the first half on the preparedness of non-bank financial institutions to meet margin and collateral calls.
In the meantime, IOSCO and the CPMI are seeking input on their consultation by April 14.