Question
What amount should be used as the initial margin posted by to the Central Counterparty (CCP) by a clearing member for the purpose of Article 50a of Regulation (EU) No 648/2012 (EMIR), introduced by Article 520 of Regulation (EU) No 575/2013 (CRR)? Does the Article 50b(c) of the EMIR apply to the initial margin? Should the excess initial margin be included?
Background on the question
It is not clear what amount should be used as the initial margin posted by to the CCP by a clearing member for the purpose of Article 50a of the EMIR, introduced by Article 520 of the CRR. Should it be market value of the collateral posted, or market value reduced by haircuts applied by the CCP, or market value reduced by haircuts applied by the CCP, or market value reduced by the supervisory volatility adjustments in accordance with the Financial Collateral Comprehensive Method specified in Article 224 of the CRR, if Article 50b(c) of the EMIR applies, or the amount equal to initial margin required. For example: Initial margin required by the CCP = 100 The market value of securities posted = 150, The market value of securities reduced by applying CCP’s haircuts = 120, The market value of securities reduced by the supervisory volatility adjustments in accordance with the FCCM = 140. Which of the above amounts should be used as the initial margin for the purpose of Article 50a of the EMIR, introduced by Article 520 of the CRR?
Answer
For the purpose of the Article 50a of EMIR, the quantity IMi should be the one defined by the Article 50b(c) of EMIR, i.e. the collateral posted by clearing members reduced by the supervisory volatility adjustment under the Financial Collateral Comprehensive Method (FCCM) described in Article 224 of CRR. Since the excess initial margin is included in the collateral posted then it should be included in the calculation.