EUROPEAN UNION: ESMA Issues Guidelines to Limit Procyclicality on CCP Margins

Tuesday May 29 2018

The European Securities Markets Association (ESMA) has published guidelines which seek to establish consistent, efficient and effective supervisory practices and to ensure a common, uniform and consistent application of EMIR in order to limit procyclicality of Central Counterparty (CCP) margins.

The adoption of the guidelines should enable national competent authorities (NCAs) to better supervise their CCPs in this respect. CCPs may also need to adapt their models and processes to the guidelines. Procyclicality of margin refers to the fact that margin requirements for the same portfolio are higher in times of market stress and lower in calm conditions.

Under EMIR, CCPs are required to monitor and account for procyclical effects of margins including to make disclosures on its risk management practices such as the models used for the calculation of margins. Therefore, ESMA’s guidelines promote consistent supervision of such requirements including:

• monitoring of the procyclicality of margin requirements;
• implementation of anti-procyclicality margin measures; and
• disclosures to facilitate margin predictability.

The guidelines will become effective from 3^rd  December 2018. The existing CCP Q&A 9(c) will be deleted as of the same date as the new guidelines cover its purpose.

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