On 17 January 2024, the Basel Committee on Banking Supervision (Basel Committee) and the International Organization of Securities Commissions (IOSCO) published a report on streamlining variation margin processes and the responsiveness of initial margin models in non-centrally cleared markets.

The report follows the 2022 report reviewing margining practices and covers two areas that were discussed: exploring the need to streamline variation margin processes in non-centrally cleared markets and investigating the responsiveness of initial margin models in non-centrally cleared markets.

The report does not propose any policy changes but sets out eight recommendations to encourage the implementation of good market practices and highlights certain areas of attention that need to be addressed.

The recommendations on streamlining variation margin focus on encouraging firms to address operational and legal challenges that could potentially inhibit a seamless exchange of margin and collateral calls during a period of stress. This includes consideration for more flexibility in accepting non-cash collateral for variation margin within the set of permissible collateral types under the Working Group on Margining Requirements Framework (the Basel Committee – ISOCO framework that established minimum standards for margin requirements for non-centrally cleared derivatives) and domestic regulation. This addresses one of the factors that exacerbated the ‘dash for cash’ during recent periods of stress for non-bank counterparties. The recommendations also encourage more widespread automation and standardisation of the margining operational processes and highlights the need for proper operational risk management, particularly when third-party service providers are used. On the initial margin responsiveness of margin models, the report supports the smooth implementation by market participants of the recent ISDA initiatives to increase the responsiveness of the bilateral ISDA Standard Initial Margin Model (SIMM) shortfall remediation protocol and recalibrate the SIMM model more often.