Procyclicality
Margin calls jumped threefold as global markets sold off
FCMs claim no client defaults, but episode revives complaints of procyclical margining
Rule change cuts ECC default fund by over a third
Member contributions hit two-year low and may fall further
As banks limit FRTB model use, outputs get more volatile
Risk managers say selection of stress window becomes more sensitive if fewer desks are on IMA
ECC default fund changes set to cut clearing member contributions
Stress loss over margin designed to ease procyclical behaviour seen during 2022 energy shock
US takes scissors to repos. In Europe, it’s not cut and dried
Stateside banks fear disadvantage over haircut rules that EU sees as not ready to implement
Mitigating margin procyclicality: the effectiveness of anti-procyclicality measures during the Covid-19 stress event
This paper analyzes the effectiveness of APC measures implemented by central counterparties for clearing member and client margins, with effectiveness sensitive to the details of calibration and type of portfolios to which the measure is applied.
No clear gain: banks question SEC’s Treasuries clearing plan
US Treasuries dealers say clearing won’t help post-Covid illiquidity – and could harm it
Market risk capital relief could cut charges at 13 EU banks
EBA says Covid-style measures could be considered to tackle energy crisis
Europe’s countercyclical buffers buck recession trends
Almost half of EBU’s members have set out CCyB hikes; five plan two or more before mid-2023
Procyclicality of central counterparty margin models: systemic problems need systemic approaches
In this paper the author argues that the focus on initial margin models is misplaced, and the reasons for this are illustrated by empirically testing the performance of standard initial margin models during the March 2020 events.
FTX’s ‘easy-access’ clearing stokes fears over runaway risk
Crypto exchange will auto-liquidate underwater positions, which critics say could fuel a death spiral in prices
Banks, CCPs protest Esma’s ‘prescriptive’ procyclicality rules
Dealers welcome model transparency push, but call for greater say on methods to combat spikes
Don’t impose blanket margin model rules, say BoE advisers
Focus instead on outcomes and costs and factor in different clearing membership, say Murphy and Vause
A cost–benefit analysis of anti-procyclicality: analyzing approaches to procyclicality reduction in central counterparty initial margin models
In this paper, the authors suggest how margin setters and policy makers might measure procyclicality and target particular levels of it by recalibrating parameters in a margin model to reduce its procyclicality or by applying an anti-procyclicality tool.
SA extends reach over EU banks’ market and op risk
Regulator-devised models have been capturing a bigger chunk of RWAs through the pandemic
OCC quants tout anti-procyclical margin method
Technique aims to lower initial margin calls in times of stress without sacrificing risk sensitivity
Sunil Cutinho on CME’s crisis performance
Maverick clearing house boss dismisses the need for anti-procyclicality tools imposed by regulators
Procyclicality control in risk-based margin models
This paper revisits the procyclicality issue in risk-based margin models and provides additional insight on procyclicality mitigation techniques.
Derivatives client clearer of the year: JP Morgan
Risk Awards 2021: bank avoided tech snags and margin call surprises that plagued peers during crisis
Clearing house of the year: Eurex Clearing
Risk Awards 2021: clearer’s Prisma margin model proves its mettle in year of market tumult
Don’t blame CCPs’ models for Covid margin spikes – WFE
Lobby group counters popular view that tools could ease procyclicality; puts focus on liquidity management