Â鶹´«Ã½

Home   News   Features   Interviews   Magazine Archive   Symposium   Industry Awards  
Subscribe
Â鶹´«Ã½
Leading the Way

Global Â鶹´«Ã½ Finance News and Commentary
≔ Menu
Â鶹´«Ã½
Leading the Way

Global Â鶹´«Ã½ Finance News and Commentary
News by section
Subscribe
⨂ Close
  1. Home
  2. Industry news
  3. FSB proposals to enhance liquidity preparedness for margin and collateral calls
Industry news

FSB proposals to enhance liquidity preparedness for margin and collateral calls


18 April 2024 Switzerland
Reporter: Carmella Haswell

Generic business image for news article
Image: putilov_denis/stock.adobe.com
The Financial Stability Board (FSB) has proposed eight policy recommendations to enhance the liquidity preparedness of non-bank market participants for margin and collateral calls, in centrally and non-centrally cleared derivatives and securities markets.

Weaknesses in liquidity risk management and governance by some market participants, were found to be the key causes behind inadequate liquidity preparedness for margin and collateral calls, says the FSB.

The organisation presented the proposals through a consultation report, which highlights the need for policy adjustments to combat liquidity strains in the non-banking financial institution (NBFI) sector, arising from spikes in margin and collateral calls during times of market stress.

Recent examples of market stress include the March 2020 market turmoil during the pandemic; the collapse of Archegos; and the commodities market turmoil and stress in liability-driven investment (LDI) funds in 2022.

One of the recommendations sets out the need for establishing liquidity risk appetites for margin and collateral calls, as well as contingency funding plans to ensure liquidity needs can be met.

Another proposal calls for liquidity stress tests to cover a range of extreme but plausible scenarios, including both backward-looking and hypothetical.

The recommendations cover liquidity risk management and governance, stress testing and scenario design, and collateral management practices of non-bank market participants, focussing on liquidity risks arising from spikes in margin and collateral calls.

They apply to non-bank market participants that may face margin and collateral calls, including insurance companies, pension funds, hedge funds and family offices.

The report also highlights the need for financial intermediaries in bilateral transactions with non-financial entities, such as commodities traders, to consider assessing their liquidity preparedness for spikes in margin calls and collateral during times of stress.

This consultation forms part of the FSB’s work programme on enhancing the resilience of NBFIs. It follows up on the findings of a review of margining practices conducted in 2022 by the Bank for International Settlements’ (BCBS) Committee on Payments and Market Infrastructures (CPMI) and the International Organization of Â鶹´«Ã½ Commissions (IOSCO).

The FSB has invited market participants to provide comments on the consultation report. Responses should be submitted through its online form by 18 June 2024.
← Previous industry article

GPFA introduces NZ Super Fund as new member
NO FEE, NO RISK
100% ON RETURNS If you invest in only one securities finance news source this year, make sure it is your free subscription to Â鶹´«Ã½ Finance Times
Advertisement
Subscribe today
Knowledge base

Explore our extensive directory to find all the essential contacts you need

Visit our directory →
Glossary terms in this article
→ Collateral
→ Hedge
→ Liquidity

Discover definitions, explanations and related news articles in our glossary

Visit our glossary →