The UK and Europe are currently consulting on both the Derivatives Clearing and Trading Obligations. Clarus are worried that the UK consultations risks a significant loss of transparency to markets. Particularly for USD. There appears to have been silence out of the CFTC on these important subjects. Europe has proposed covering some RFRs in the […]

My recent blog on Archegos, Trade Repositories and Initial Margin, was very popular, so I wanted to do a follow up on the same two topics; transparency of derivatives and initial margin requirements. For those of you not familiar with the three letter acronym, APA, it stands for Approved Publication Arrangement which is a European […]

Amongst the many questions that standout from the huge losses suffered by prime brokers in closing out the positions of Archegos Capital Management, the two that interest me most are, first the lack of transparency of the derivatives (total return swaps) used for these positions and second the in-adequate risk management by the prime brokers. […]

Q4 2020 saw $7.0bn DV01 of new USD-LIBOR* linked activity written in OTC derivatives markets. It is a similar story in GBP ($4.5bn DV01), JPY and CHF markets. Why is so much new risk being written against these indices when they are due to cease imminently? Responses to the IBA consultation on a possible cessation […]

ISDA SIMM v2.3 is effective December 5, 2020 Updated with a full re-calibration and industry backtesting Initial Margin will change for your portfolios The change can be non-material or significantly higher or lower In this article I highlight some of the changes in risk weights However to quantify the actual impact of SIMM v2.3 You need to run […]

Amended 7th October 2020 to correct the changes to block and cap thresholds to 67% and 75% respectively. The block threshold for Swaps, and all other OTC derivatives, is changing. The thresholds for trades qualifying for block status and the reporting cap for notional amounts are also diverging. This will substantially increase transparency in the […]

Clearing Houses have recently published data on the magnitude of margin calls they made in Q1 2020 and these are interesting to say the least. Given the massive price volatility we observed in March across all asset classes, we knew these were going to be big numbers, so let’s dive into the detail. Variation Margin […]

In a recent blog, procylical margins in the time of covid-19, I reproduced a chart from a BIS Bulletin showing that IM requirements for US Equity Index Futures doubled during March, the peak of the covid-19 market crisis. Today I will take a detailed look into these margin changes, concentrating on the S&P 500 index. […]

Given the recent increases in initial margin that I covered in a few recent blogs (see Procyclical margins in the time of Covid-19 and Crashing rates and swap margins), I wanted to look into backtesting of margin models. Background Backtesting is a well established practice, widely used by all CCPs to check the adequacy of […]

I recently read an interesting BIS Bulletin, titled “The CCP-Bank nexus in the time of Covid-19”, by Wenqian Huang and Elod Takis (available here), with the following key takeaways: The specific part I am going to focus on today is the third bullet point, “higher margins should be expected but the extent of procyclicality or […]