Arbeitspapier
Using speed and credit limits to address the procyclicality of initial margin at central counterparties
This paper proposes a practical approach to address the procyclicality of initial margin at central counterparties (CCPs) that can work even in periods of extreme stress. The approach allows CCPs to limit the speed of margin increases resulting from spikes in market volatility. To maintain the desired level of risk protection, the model covers, through loss-sharing arrangements, a chosen number of the largest shares of the margin increases that are deemed procyclical. To facilitate adoption of this approach, we allow loss sharing to be capped through the allocation of bilateral credit limits. We undertake an empirical exercise to demonstrate that, even with conservative assumptions, the proposed approach can generate significant margin relief without generating losses that cannot be absorbed by clearing members.
- Language
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Englisch
- Bibliographic citation
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Series: Bank of Canada Staff Discussion Paper ; No. 2016-18
- Classification
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Wirtschaft
General Financial Markets: Government Policy and Regulation
- Subject
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Financial markets
Financial stability
Financial system regulation and policies
Payment clearing and settlement systems
- Event
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Geistige Schöpfung
- (who)
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Chande, Nikil
Labelle St-Pierre, Nicholas
- Event
-
Veröffentlichung
- (who)
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Bank of Canada
- (where)
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Ottawa
- (when)
-
2016
- DOI
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doi:10.34989/sdp-2016-18
- Handle
- Last update
-
10.03.2025, 11:45 AM CET
Data provider
ZBW - Deutsche Zentralbibliothek für Wirtschaftswissenschaften - Leibniz-Informationszentrum Wirtschaft. If you have any questions about the object, please contact the data provider.
Object type
- Arbeitspapier
Associated
- Chande, Nikil
- Labelle St-Pierre, Nicholas
- Bank of Canada
Time of origin
- 2016
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