Market participants respond to ESMA CCP consultation
March 9, 2018
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ESMA, the European Securities and Markets Authority, has this week published a collection of responses to the paper it issued on January 8 this year to consult on its draft guidelines for the consistent application of the requirements for central counterparties (CCPs) to set prudent and stable margins to limit pro-cyclicality.

Eurex Clearing said (inter alia) that it welcomes the possibility to respond to the paper and the effort of ESMA to set such guidelines.

It says it understands that the regulators view margin pro-cyclicality from at least two perspectives. The first is microprudential and pertains to the impact that pro-cyclical margin revisions could have on the liquidity needs of market participants who need to meet such additional requirements. The second is macroprudential: the pro-cyclical margins fall in the period of low volatility allowing market participants to increase their financial leverage.

It says the margin revisions associated with an increase in market volatility necessitate de-leveraging which itself might accentuate the effects on the markets.

The London Stock Exchange Group said it too supports the notion of clear guidelines and makes a number of specific comments on the questions raised. LSEG says it believes that clear and documented measures to avoid pro-cyclical effects should be part of a proper risk management framework, being a core tool to avoid big step margin changes with further drain of resources on participants during periods of market stress.

The LSEG says that the proposed examples of quantitative metrics for monitoring the efficiency of anti-pro-cyclicality margin measures should be complemented by analysis of co-movement of market indicators and margin requirements changes.

LCH says it considers pro-cyclicality to be a very important issue for a CCP and that it implemented rigorous standards in this regard several years ago.

Other respondents included asset manager Amundi, ICMA ERCC, European Systemic Risk Board Secretariat, EACH and CCP 12.





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ESMA, the European Securities and Markets Authority, has this week published a collection of responses to the paper it issued on January 8 this year to consult on its draft guidelines for the consistent application of the requirements for central counterparties (CCPs) to set prudent and stable margins to limit pro-cyclicality.

Eurex Clearing said (inter alia) that it welcomes the possibility to respond to the paper and the effort of ESMA to set such guidelines.

It says it understands that the regulators view margin pro-cyclicality from at least two perspectives. The first is microprudential and pertains to the impact that pro-cyclical margin revisions could have on the liquidity needs of market participants who need to meet such additional requirements. The second is macroprudential: the pro-cyclical margins fall in the period of low volatility allowing market participants to increase their financial leverage.

It says the margin revisions associated with an increase in market volatility necessitate de-leveraging which itself might accentuate the effects on the markets.

The London Stock Exchange Group said it too supports the notion of clear guidelines and makes a number of specific comments on the questions raised. LSEG says it believes that clear and documented measures to avoid pro-cyclical effects should be part of a proper risk management framework, being a core tool to avoid big step margin changes with further drain of resources on participants during periods of market stress.

The LSEG says that the proposed examples of quantitative metrics for monitoring the efficiency of anti-pro-cyclicality margin measures should be complemented by analysis of co-movement of market indicators and margin requirements changes.

LCH says it considers pro-cyclicality to be a very important issue for a CCP and that it implemented rigorous standards in this regard several years ago.

Other respondents included asset manager Amundi, ICMA ERCC, European Systemic Risk Board Secretariat, EACH and CCP 12.



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