New margin regulations for the non-cleared OTC derivatives to reduce systemic risk across financial markets
(Thomson Reuters ONE) -
Press Release London, Nice, Paris,
Singapore, June 27, 2016
New margin regulations for the non-cleared OTC derivatives to reduce systemic
risk across financial markets
In a new publication entitled "Initial Margin for Non-Centrally Cleared OTC
Derivatives - Overview, Modelling and Calibration," EDHEC-Risk Institute
provides a detailed overview and analysis of the forthcoming new framework to be
used by large financial institutions to determine initial margin (IM) and
variation margin (VM) payments when trading non-cleared over-the-counter (OTC)
derivatives. The Fédération Bancaire Française (FBF) supports the research chair
on "Innovations and Regulations in Investment Banking" in which this research
was produced.
Coming into effect in September 2016, this new framework was set out in 2015 and
is based on the recommendations of the BCBS/IOSCO Working Group on Margin
Requirements (WGMR). This framework has been in development since 2009, and was
a response to the events of September 2008 which saw the bankruptcy of Lehman
Brothers, the bailout of AIG and the federal takeover of Fannie Mae and Freddie
Mac, all of whom had large exposures to the OTC derivatives market. The result
of these regulations is that banks must hold initial margin collateral. This is
intended to protect banks against any close-out loss on the bilateral set of
non-cleared OTC derivatives that they would have with a defaulted counterparty.
The paper provides an overview of the new initial margin (IM) regulations that
will come into effect in September 2016. Of the two proposed approaches, it
explains why the model-based approach is the only framework that correctly
captures the counterparty risk presented by non-centrally cleared OTC
derivatives. It also sets out the modelling requirements specified by the WGMR,
and discusses modelling implementation issues. In particular, the fact that the
framework prevents the risk of assets with multiple market factors from being
netted fully is discussed. Additionally, it describes the current IM model being
developed by the International Swaps and Derivatives Association (ISDA). It then
presents some model calibrations across a range of asset classes, performed in a
manner that conforms to the WGMR requirements.
"Initial margin requires parties to post two-way collateral. Since our earliest
discussions with the FBF on the question of initial margin, we favoured the idea
of a market-wide standard model to avoid the risk of costly and time-consuming
disputes between counterparties regarding collateral amounts. It was therefore
very welcome to see ISDA lead such an initiative. Their modelling approach seems
both reasonable and practically feasible", says the author Dominic O'Kane, an
Affiliate Professor of Finance at EDHEC Business School. He also stated that "as
the posted collateral cannot be reused, there are concerns about the impact of
initial margin on market liquidity." He added, "This comes at a time when the
demand for high quality collateral is increasing."
A copy of "Initial Margin for Non-Centrally Cleared OTC Derivatives - Overview,
Modelling and Calibration" can be downloaded via the following link:
EDHEC-Risk Position Paper Initial Margin for Non-Centrally Cleared OTC
Derivatives - Overview, Modelling and Calibration
This research was supported by the Fédération Bancaire Française (FBF)as part of
the research chair at EDHEC-Risk Institute on "Innovations and Regulations in
Investment Banking". This chair is providing advanced research in four areas:
skewness as an asset class; corporate and sovereign credit default swap (CDS)
markets; the evaluation of policies to regulate financial markets; and options
on liquidity.
Contact:
For more information, please contact: Maud Gauchon
Tel.: +33 493 187 887 - E-mail: maud.gauchon(at)edhec-risk.com
To visit our web site: www.edhec-risk.com
About the Fédération Bancaire Française (FBF)
The French Banking Federation (FBF) is an association which represents all
French banks and foreign banks with operations in France in the form of
subsidiaries or branch offices, whether they are European or from the rest of
the world. It was formed in 2000 from the desire to bring together all companies
in the banking sector - commercial banks already enjoying membership of the
French Bankers Association (AFB) and cooperative and mutualist banks - in order
to promote, with a single voice, the activity of the profession in France,
Europe and internationally. Located in Paris, the FBF is also present throughout
France via a network of 105 regional and departmental committees. It also
maintains offices in Brussels, and a representative office in Frankfurt since
November 2014.
* 120 permanent staff work at the FBF and the AFB in conjunction with more
than 350 bankers that come together in the FBF's commissions and committees.
On the ground, 105 regional and departmental committees call upon the
services of more than 2,500 bankers.
* 378 banks are members of the FBF: universal banks, online banks, merchant
banks, private banks, local banks, etc. Credit institutions licensed as
banks and the branch offices of credit institutions in the European Economic
Area can, it they wish become fully-fledged members of the FBF, which would
then represent their professional institution. The central bodies of
cooperative or mutualist banking groups and the AFB are also fully fledged
members.
Since 2008, the French Banking Federation (FBF) has been supporting the academic
researches dedicated to investment banking. In 2013 and for a period covering
2013-2017, FBF renewed its engagement and allocated substantial supports to
three Chairs namely "IDEI Toulouse" dedicated to investment banking and
markets, "EDHEC-Risk Institute" dedicated to derivatives and structured products
and "Polytechnique / Evry" dedicated to market transition.
Website: www.fbf.fr
About EDHEC-Risk Institute
Since 2001, EDHEC Business School has been pursuing an ambitious policy in terms
of practically relevant academic research. This policy, known as "Research for
Business", aims to make EDHEC an academic institution of reference for the
industry in a small number of areas in which the school has reached critical
mass in terms of expertise and research results. Among these areas, asset and
risk management have occupied privileged positions, leading to the creation in
2001 of EDHEC-Risk Institute, which has developed an ambitious portfolio of
research and educational initiatives in the domain of investment solutions for
institutional and individual investors.
This institute now boasts a team of close to 50 permanent professors, engineers
and support staff, as well as 38 research associates from the financial industry
and affiliate professors. EDHEC-Risk Institute is located at campuses in
Singapore, which was established at the invitation of the Monetary Authority of
Singapore (MAS); the City of London in the United Kingdom; Nice and Paris in
France. The philosophy of the institute is to validate its work by publication
in prestigious academic journals, but also to make it available to professionals
and to participate in industry debate through its position papers, published
studies and global conferences.
To ensure the distribution of its research to the industry, EDHEC-Risk also
provides professionals with access to its website, www.edhec-risk.com, which is
entirely devoted to international risk and asset management research. The
website, which has more than 70,000 regular visitors, is aimed at professionals
who wish to benefit from EDHEC-Risk's analysis and expertise in the area of
applied portfolio management research. Its quarterly newsletter is distributed
to more than 200,000 readers.
EDHEC-Risk Institute also has highly significant executive education activities
for professionals. In partnership with CFA Institute, it has developed advanced
seminars based on its research which are available to CFA charterholders and
have been taking place since 2008 in New York, Singapore and London.
In 2012, EDHEC-Risk Institute signed two strategic partnership agreements, with
the Operations Research and Financial Engineering department of Princeton
University to set up a joint research programme in the area of asset-liability
management for institutions and individuals, and with Yale School of Management
to set up joint certified executive training courses in North America and Europe
in the area of risk and investment management.
As part of its policy of transferring know-how to the industry, EDHEC-Risk
Institute has set up ERI Scientific Beta. ERI Scientific Beta is an original
initiative which aims to favour the adoption of the latest advances in smart
beta design and implementation by the whole investment industry. Its academic
origin provides the foundation for its strategy: offer, in the best economic
conditions possible, the smart beta solutions that are most proven
scientifically with full transparency of both the methods and the associated
risks.
EDHEC-Risk Institute EDHEC Risk Institute-
Europe EDHEC Risk Institute-Asia
393 promenade des Anglais 10 Fleet Place,
Ludgate 1 George Street
BP 3116 - 06202 Nice Cedex 3 London EC4M 7RB
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France United
Kingdom Singapore 049145
Tel: +33 493 187 824 Tel:
+44 207 871 6740 Tel: +65 64380030
EDHEC Risk Institute-France
16-18 rue du 4 septembre
75002 Paris
France
Tel: +33 153 327 630
www.edhec-risk.com
Press release New margin regulations for the non-cleared OTC derivativ:
http://hugin.info/157174/R/2023277/751741.docx
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Unternehmensinformation / Kurzprofil:
Datum: 27.06.2016 - 14:39 Uhr
Sprache: Deutsch
News-ID 480110
Anzahl Zeichen: 11866
contact information:
Town:
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Kategorie:
Business News
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