Question ID:
Legal Act:
Regulation (EU) No 575/2013 (CRR)
Market risk
COM Delegated or Implementing Acts/RTS/ITS/GLs/Recommendations:
Not applicable
Not applicable
Disclose name of institution / entity:
Name of institution / submitter:
Comunytek Consultores S.L.
Country of incorporation / residence:
Type of submitter:
Consultancy firm
Subject Matter:
Use of Initial Margin (IM) posted by a Client as risk-mitigating effect in the calculation of the own funds requirement for CCP transactions the Clearing Member bank has with that Client

If a clearing member collects Initial Margin (IM) for client cleared trades and his collateral is passed to a QCCP, may the Clearing member recognise this collateral (IM) as risk-mitigating for calculation the fully adjusted value of the exposure (E*) according to CRR Art 223.5; independently of the method used to calculate the exposure ?

Background on the question:

The question is about the risk-mitigating effect of Initial Margin (IM) in the calculation of own funds requirement of CCP-related transactions between the Clearing Member and his Client. In the article 304 of CRR (“Treatment of clearing members´exposures to clients”) said “Where an institution acts a clearing member and, in that capacity, acts as financial intermediary between a client and a CCP it shall calculate the own funds requirement for its CCP-related transactions with client in accordance with Sections 1 to 8 of this Chapter and with the Title VI of Part Three, as applicable” In the Chapter VI defines several methods of calculating the exposure value: Mark-to-Market Method (Section 3), Original Exposure Method (Section 4); Standarized Method (Section 6). Suppose the Clearing Member uses “Mark-to-market” method for EAD calculation applying the scalar multiplier defined in 304.4. Suppose the EAD is “E”. In this calculation we have used the daily MtM collateral (Variation Margin) that the Clearing Member as the Client interchange daily without any threshold and any MTA; but we have not used the IM that Clearing Member collects as additional protection. The Clearing member bank in order to compute his own funds related to these CCP-related transactions with the Client; wants to use the additional protection that the Initial Margin (IM) that daily he receives from his Client for the CCP-related transactions. As you know following the EMIR requirements for segregated accounts, the Clearing Member pass “as-is” to the QCCP the IM that he has received from the Client . According to “Frequently asked questions on the Basel III counterpaty credit risk and exposures to central counterparties-Frequently asked questions! (december 2012)" in the answer to question 5.12 said “If a clearing member collects collateral from a client for client cleared trades and his collateral is passed on to CCP, the clearing member may recognise this collateral for both the CCP-clearing member leg and the clearing member-client leg of the client cleared trade. Therefore, IMs as posted by client to CM mitigate the exposure the CM has againts these clients”. Following these, the question is if according the present CRR the Clearing Member can use the IM posted by client as risk-mitigation of the exposure has to the Client for the CCP-related transactions?. Is it possible to use the formula tha appears in CRRR art 223; E*=max {0, EVA-CVAM), in our example E*=max{0;E-IM} (IM is collateral cash) independly of the method used to compute E? If the IM posted by the Client is more than the exposure E, then the own funds (risk-weigth) could be 0; as IM posted by the client > then the exposure (E)? As additional background information, please see art 186 of “International Convergence of Capital Measurement and Capital Standards” (edition 2006) Best regards

Date of submission:
Published as Rejected Q&A
Rationale for rejection:

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Rejected question