Following the March 2020 turmoil, the BCBS, CPMI and IOSCO conducted a review on margining practices in centrally and non-centrally cleared markets,1 which concluded that further work is needed on increasing transparency in centrally cleared markets; enhancing the liquidity preparedness of market participants; identifying data gaps in regulatory reporting; streamlining variation margin processes in centrally and non-centrally cleared markets; and evaluating the responsiveness of both centrally cleared and non-centrally cleared initial margin models to market stresses. The BCBS-CPMI-IOSCO review recommended that the FSB undertake additional international work to enhance liquidity preparedness of market participants and work on regulatory data gaps so that authorities can better monitor the non-bank financial intermediation (NBFI) sector’s liquidity preparedness and intermediaries’ provision of liquidity to clients.
The FSB’s work identified weaknesses in liquidity risk management and governance by some market participants as key causes of inadequate liquidity preparedness for margin and collateral calls. This raises the importance of issues such as robust liquidity stress-testing, planning for extreme but plausible scenarios, monitoring and managing concentrated and leveraged positions, putting in place effective collateral management practices, ensuring adequate levels of liquidity as well as diversified and reliable funding sources, and having efficient decision-making processes.
This consultation report presents the outcome of the FSB’s analysis and consults on eight cross-sectoral high-level policy recommendations to enhance the liquidity preparedness of non-bank market participants for margin and collateral calls in centrally and non-centrally cleared derivatives and securities markets.
Responses should be submitted by Tuesday 18 June 2024.
Responses will be published on the FSB’s website unless respondents expressly request otherwise on this online form.
For questions, please contact the FSB ([email protected]).
1 See BCBS, CPMI and IOSCO (2022), Review of margining practices (September).
