EUROPE: The European Banking Authority (EBA) Consults on Regulatory Technical Standards (RTS) on the margin periods for risk used for the treatment of clearing members` exposures to clients

Monday March 3 2014

The European Banking Authority (EBA) has launched a consultation on draft Regulatory Technical Standards (RTS) aimed at specifying the minimum margin periods of risk (MPOR) that institutions acting as clearing members may use for the calculation of their capital requirements for exposures to clients. These RTS will be part of the Single Rulebook aimed at enhancing regulatory harmonisation in the banking sector in the European Union. The consultation runs until 9 May 2014.

In order to incentivise the use of central counterparties (CCPs), and in line with the international standards that amended the Basel II text, the Capital Requirements Regulation (CRR) introduces a special treatment for centrally cleared derivatives. In this respect, these draft RTS deal with the capital requirements that institutions acting as clearing members need in order to calculate their exposures to clients arising from cleared derivatives. These draft RTS do not deal with institutions` exposures to central counterparties (CCPs).

In particular, these draft RTS specify the level of a particular parameter, the margin period of risk, that clearing members may use when they apply the Internal Model Method (IMM) or other non-internal methods to calculate the regulatory requirements for Counterparty Credit Risk (CCR). The proposed methodology aims at properly capturing the risk arising from derivatives exposures to clients adding very limited operational burden on institutions. This is done by identifying the liquidation periods estimated by CCPs for margin purposes as proxies for the margin periods of risk.

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