CFTC and the Bank of England Comment on Report on Initial Margin Transparency and Responsiveness in Centrally Cleared Markets

Purpose:
The purpose of this report is to provide a comprehensive analysis of initial margin transparency and responsiveness in centrally cleared markets, as well as to propose policy changes aimed at enhancing these aspects. The report is the culmination of work undertaken by the Basel Committee on Banking Supervision (BCBS), the Bank for International Settlements’ Committee on Payments and Market Infrastructures (CPMI), and the International Organization of Securities Commissions (IOSCO). This report is part of a broader effort to improve financial stability, following the March 2020 market turmoil.

Effects on Industry:
The publication of this report is expected to have significant effects on the industry, particularly in terms of initial margin transparency and responsiveness. The proposed policy changes aim to increase transparency and enhance evaluation of margin responsiveness in centrally cleared markets. This may lead to increased regulatory requirements for clearinghouses and other market participants. Additionally, the report’s findings and recommendations are likely to influence the development of standards and guidelines for initial margin practices.

Relevant Stakeholders:
The relevant stakeholders affected by this report include:

• Clearinghouses and central counterparties (CCPs)
• Financial institutions and banks
• Securities exchanges and trading platforms
• Regulators and supervisors, including the BCBS, CPMI, IOSCO, and national regulatory authorities
• Market participants, including buy-side firms and sell-side firms

These stakeholders will be impacted by the proposed policy changes and increased transparency requirements.

Next Steps:
To comply with or respond to this report, stakeholders should:

• Review the proposed policy changes and recommendations outlined in the report
• Consider implementing new procedures and policies to increase initial margin transparency and enhance margin responsiveness
• Engage with regulators and other industry participants to provide feedback on the report’s findings and proposals
• Monitor future developments and updates on the implementation of these policy changes

Any Other Relevant Information:
The report was informed by a data-driven analysis of margin calls in March and April 2020, as well as relevant market events, including the publication of a report on margin calls in the context of spring 2022 commodity market volatility. The report also highlights the importance of international coordination across authorities and committees to address financial stability risks. The co-chairs, Sasha Mills and Richard Haynes, thanked the members of the ad hoc BCBS-CPMI-IOSCO margin group for their collaborative participation in finalizing the policy proposals.

In addition, the report was published alongside two other reports: Streamlining variation margin in centrally cleared markets – examples of effective practices (CPMI and IOSCO) and Streamlining variation margin processes and initial margin responsiveness of margin models in non-centrally cleared markets (BCBS and IOSCO).