Global Standard-Setting Bodies Publish Final Reports on Margin Practices

The Basel Committee on Banking Supervision (BCBS), the BIS Committee on Payments and Market Infrastructures (CPMI), and the International Organization of Securities Commissions (IOSCO) have released three comprehensive reports addressing initial and variation margin practices in centrally cleared and non-centrally cleared markets.

These reports stem from the 2022 BCBS-CPMI-IOSCO review of margining practices and are part of the Financial Stability Board’s (FSB) coordinated policy response to the market disruptions experienced during the March 2020 “dash for cash” event.

The goal of these reports is to enhance transparency, streamline margin processes, and improve the predictability of margin requirements across all markets.

Key Highlights

1. Transparency and Initial Margin Policy Proposals for Centrally Cleared Markets
   The BCBS, CPMI, and IOSCO propose 10 key policies to improve transparency and enhance understanding of initial margin requirements for central counterparties and clearing members. These proposals focus on ensuring greater responsiveness and transparency in margin practices.
2. Effective Practices for Variation Margin in Centrally Cleared Markets
   The CPMI and IOSCO outline eight effective practices aimed at improving market participants’ liquidity preparedness and streamlining the efficient collection and distribution of variation margin. These practices build on the CPMI-IOSCO Principles for financial market infrastructures.
3. Recommendations for Margin Processes in Non-Centrally Cleared Markets
   The BCBS and IOSCO offer eight recommendations to encourage firms to adopt best practices. These recommendations aim to enhance variation margin processes and improve the responsiveness of initial margin models in non-centrally cleared markets.

Comprehensive Collaboration

These reports form part of a broader initiative involving the BCBS, CPMI, IOSCO, and the FSB. The reports collectively address transparency, process streamlining, and liquidity preparedness for margin and collateral calls.

The FSB’s Final Report on Liquidity Preparedness for Margin and Collateral Calls (published December 2024) complements this effort, contributing to a unified approach to improving market resilience and preparedness for future challenges.

Together, these publications represent a step forward in enhancing financial stability, ensuring markets are better equipped to handle margin requirements and maintain liquidity during periods of volatility.