Streamlining Variation Margin in Centrally Cleared Markets, Examples of Effective Practices

COMPLIANCE OBLIGATIONS MEMO — CPMI-IOSCO d226 (15 January 2025) To: Board Audit and Risk Committee From: General Counsel Classification key: (A) MANDATORY REQUIREMENT; (B) SUPERVISORY EXPECTATION; (C) VOLUNTARY GUIDANCE. Threshold legal status of the document: d226 is described as 'examples of how standards set out in the CPMI-IOSCO Principles for Financial Market Infrastructures (PFMI), as supplemented by the relevant guidance, can be met.' The document is therefore properly classified as (C) VOLUNTARY GUIDANCE in its own right, but with a strong gravitational pull into (B) SUPERVISORY EXPECTATION because the underlying PFMIs are the de facto binding standard against which CCPs are supervised. Practice-by-practice classification: Practice 1 — Scheduled intraday VM calls (frequency/timing). Classification: (B) Supervisory expectation. Enforcement mechanism: supervisory dialogue under PFMI Principle 6 (margin) and Principle 7 (liquidity risk); EMIR Article 41 / RTS on margins for CCPs in the EU; PRA / BoE FMI supervision in the UK. Practice 2 — Ad hoc intraday VM calls. Classification: (B) Supervisory expectation. Practice 3 — Use of excess collateral to meet VM. Classification: (C) Voluntary guidance, trending (B) where the CCP rulebook already references it. Practice 4 — Pass-through of VM by CCPs. Classification: (B) Supervisory expectation. PFMI Principle 7 (liquidity risk) and Principle 23 (disclosure) provide the supervisory hook. Practice 5 — Acceptable forms and currency of VM. Classification: (B) Supervisory expectation, with (A) elements where national rules already mandate cash VM in specified currencies (e.g. EMIR RTS on collateral). Practice 6 — Pass-through of VM between clearing members and clients. Classification: (B) Supervisory expectation. Practice 7 — CCP transparency on VM processes. Classification: (B) Supervisory expectation, with (A) overlap where national disclosure rules (PFMI Disclosure Framework, CFTC Part 39, EMIR Article 38) already mandate the disclosure. Practice 8 — Clearing-member transparency to clients on VM processes. Classification: (B) Supervisory expectation. EMIR / MiFID II / CFTC Part 22 client clearing disclosure rules provide the binding overlay. Bottom line for the Committee: None of the eight practices is a stand-alone (A) MANDATORY REQUIREMENT solely by virtue of d226. However, all eight are properly treated as (B) SUPERVISORY EXPECTATIONS because (i) the PFMIs they illustrate ARE the binding standard for CCP supervision in every G20 jurisdiction, (ii) national supervisors will examine CCPs against these effective practices in their next supervisory cycle, and (iii) several practices already overlap with mandatory national rules. The Committee should plan implementation on the assumption that material non-adherence will draw supervisory findings.

D226 stated purpose: 'examples of how standards set out in the CPMI-IOSCO Principles for financial market infrastructures, as supplemented by the relevant guidance, can be met.' The document provides non-binding examples, not new regulatory requirements. [Source: BIS d226 landing page; Securities Finance Times; Disruption Banking]

Streamlining variation margin in centrally cleared markets – examples of effective practices (Final Report, d226) — d226 — Examples of effective practices (eight-practice section)