European Union: European Securities And Markets Authority Finalizes Guidelines On Anti-Procyclicality Margin Measures For CCPs

On May 28, 2018, ESMA published a Final Report, setting out Guidelines for national regulators of CCPs on the application of rules under the European Market Infrastructure Regulation that require CCPs to adopt antiprocyclicality margin measures.

EMIR requires CCPs to impose, call and collect margins to limit their credit exposures from clearing members. A CCP must also regularly monitor and, if necessary, revise the level of its margins to reflect current market conditions taking into account any potentially procyclical effects of those revisions. Procyclicality of margin is the term used to describe the fact that margin requirements for the same portfolio are higher in times of market stress and lower in calm conditions. Regulatory Technical Standards under EMIR set out requirements for CCPs to use at least one of three options to limit procyclicality to the extent that the financial soundness of the CCP is not negatively affected. This has been controversial, since U.S. regulators impose no such requirements in practice on U.S. CCPs, leading to more expensive margin requirements in Europe. The Guidelines seek to clarify and ensure consistent application of the requirements across the EU.

ESMA has finalized the Guidelines following a consultation on draft guidelines which closed on February 28, 2018. Respondents to that consultation were largely supportive of the draft guidelines. However, following responses received, ESMA has made a number of small revisions to the draft guidelines, in particular relating to quantitative metrics for monitoring margin procyclicality, incorporation of all risk factors in APC margin measures and the frequency and alignment of margin floor parameters to margin calculation.

The Guidelines will apply from December 3, 2018 to all national regulators that supervise CCPs authorized under EMIR.

The ESMA's Final Report is available at: https://www.esma.europa.eu/sites/default/files/library/esma70-151-1293_final_report_on_guidelines_on_ccp_apc_margin_measures.pdf  and details of the consultation are available at: https://finreg.shearman.com/proposed-eu-guidelines-on-ccp-requirement-for-ant.

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