The level of capital requirements linked to K-DTF is expected to be limited. We understand that a period of high volatility would require more trading volumes in order to actively manage the price risk linked to this period. Therefore we welcome the idea of adjustment to the K-DTF factor during these periods. We understand from Article 4 of Regulation 2017/578 that the trading venues will determine the start and end of the extreme volatility period. Article 3 of the same regulation mentions several other exceptional events that in our view should not be considered for an K-DTF adjustment as they most likely will decrease trading flow. Consequently, we do not see other situations of market stress that should be taken into account for this K-factor.
For investment firms which are part of a large industrial group, which are being used as a window to the market, it is rather uncommon to have trading desks with a portfolio solely performing cleared or margined positions. Using a mix of K-NPR and K-CMG approach would also most likely be inconsistent with the way market risk is managed. This being said, it could be interesting to consider extreme volatility periods as well (see Q3) as an event to compare K-CMG and K-NPR.
The initial margin of the respective K-CMG portfolio needs to be clearly identifiable and not to be mixed with K-NPR portfolios. It seems very uncommon to have this set-up.