Response to second Joint Consultation on draft RTS on risk-mitigation techniques for OTC-derivative contracts not cleared by a CCP
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CCP margin models have been developed over time under rigorous regulatory oversight. LCH.Clearnet recognises that the margin requirements for non-centrally cleared contracts are likely to necessitate differences to these; however we believe these differences should only ever support the G20 aim that “Non-centrally cleared derivatives contracts should be subject to higher capital requirements” and the BIS aim that these margin rules should promote central clearing.
Respondents are invited to comment on the proposal in this section concerning the timing of calculation, call and delivery of initial and variation margins.
We fully agree with the ESAs view that the daily exchange of margins should be considered a core component of this framework. Timely exchange of both IM and VM is vital in achieving the genuine systemic risk reduction to which these measures are directed. LCH operates clearing services that support a number of large global marketplaces, and calculate, call and collect margin with a frequency no less than daily (and often, more frequently).Respondent are invited to provide comments on whether the draft RTS might produce unintended consequence concerning the design or the implementation of initial margin models.
The use of a 99% confidence level over MPOR of 10 days differs from current CCP margin requirements; additionally, a 3-5 year calibration period may have the unintended consequence of ignoring key periods of historical volatility, which are captured by CCPs.CCP margin models have been developed over time under rigorous regulatory oversight. LCH.Clearnet recognises that the margin requirements for non-centrally cleared contracts are likely to necessitate differences to these; however we believe these differences should only ever support the G20 aim that “Non-centrally cleared derivatives contracts should be subject to higher capital requirements” and the BIS aim that these margin rules should promote central clearing.