On 24 May 2023, the Basel Committee on Banking Supervision (BCBS), the Bank for International Settlements’ Committee on Payments and Market Infrastructures (CPMI) and the International Organization of Securities Commissions (IOSCO) published a joint report on margin dynamics in centrally cleared commodities markets in 2022.
The report examines margin calls in centrally cleared commodities markets during the volatility following the Russian invasion of Ukraine in 2022. The report is based on a survey of central counterparties (CCPs) that clear commodities derivatives and on an industry workshop held to gather the perspectives of end users of commodities derivatives. It complements the BCBS-CPMI-IOSCO review of margining practices report published in September 2022, which analysed the effects of market volatility during the COVID-19 period on margin demands and the associated impact on market participants.
The report looks at the dynamics of CCPs’ margin models, the use of discretion and its effect on margin procyclicality, and the other ways in which CCPs adapted their risk management during this period. It also investigates market participants’ preparedness to meet margin calls during these stress events based on the level of transparency and predictability of these margin practices.
Among the report’s findings are:
- End users of commodities derivatives are concerned about the current level of transparency and predictability of CCPs’ margin requirements, in particular for intraday margin calls.
- Many end users of commodity derivatives believe that there is scope to improve the transparency and predictability of additional margin requirements applied by their clearing brokers on top of the initial CCP margin (referred to as ‘add-ons’ or ‘margin multipliers’).
The findings in this report will inform the international policy work set out in the BCBS-CPMI-IOSCO Review of margining practices, aimed at evaluating the responsiveness of initial margin models and enhancing the transparency of margin requirements in centrally cleared markets.