Throughout the market turmoil in March 2020 during the height of the COVID-19 pandemic, we witnessed unprecedented market volatility, prompting government intervention and regulatory changes. Central counterparties (CCPs) observed significant increases in Variation Margin (VM) but managed to perform their duty robustly and reliably with minimal impact to clearing members, despite a change of operating conditions.
It is understood that clearing members and their respective clients are now requesting additional disclosure from central counterparties (CCPs) in order to analyse the metrics of the Public Quantitative Disclosures (PQDs) in more detail. Specifically, a request for further information on ‘contract-level’ back-testing results and margin breaches.
CCPs already disclose a significant amount of detailed and standardized data (both, quantitatively and qualitatively) in order to provide transparency to market participants as part of Principle 23, Key Consideration 5 of the CPMI-IOSCO PFMIs. Granularity is helpful; however it is unclear whether further data on top of current disclosures regarding the aforementioned requests would provide further risk mitigation. Some CCPs are open to the request but require specific details of how this would be useful, other CCPs agree that this additional data has limited value for disclosure and are disinclined to include this arbitrarily. From a systemic risk perspective, further disclosure on back-testing would be a small change in comparison to the lack of data in the uncleared (opaque) markets where transparency and disclosure would be beneficial for the overall market ecosystem.
Within Principle 23, Key Consideration 5 of the PFMIs, it is stated: “An FMI should complete regularly and disclose publicly responses to the CPSS-IOSCO Disclosure framework for financial market infrastructures. An FMI also should, at a minimum, disclose basic data on transaction volumes and values.”
A vast amount of effort has been put forward into developing further standardization and an aligned disclosure format to CCP metrics over the years whereby CCPs provide a comprehensive view of their financial condition in order for market participants to accurately perform risk assessments and the creditworthiness of a CCP. Although the PFMI requirement states “basic data”, the majority of CCPs provide supplementary data on top of the PQDs in order to provide further transparency on their disclosures through qualitative notes within the PQD file itself or by additional information clearly stated on their respective websites. CCP interpretation of the disclosures have since been further enhanced and the reliability of the data is now much more aligned to the standards.
Discussions over the regulatory timeline of a quarterly release, has also been an area of debate, however; the quarterly release of the PQDs strikes a fair balance for the need to verify the accuracy and reliability of the data before it is publicly released; in order to reduce any potential recall and change of the disclosure. Furthermore, disclosures cannot be published before the financial results of listed companies, as this can move the market.
Multilateral discussions for enhancement to the disclosures have been underway between market participants and it is likely that these discussions will provide further clarity and positive alignment on the PQDs.
For more information:
- After Covid, CCPs face calls for revamped disclosures
- CPMI-IOSCO Public Quantitative Disclosure Standards for Central Counterparties
- CCPs Again Demonstrate Strong Resilience in Times of Crisis
 The Committee on Payments and Market Infrastructure, and; Board of the International Organization of Securities Commissions (CPMI-IOSCO) released the Principles for Financial Market Infrastructures (PFMIs) in April 2012.
 At their meeting in June 2014, the central bank Governors of the Global Economy Meeting (GEM) endorsed a new mandate and charter for the Committee on Payment and Settlement Systems (CPSS). The GEM also decided to rename the CPSS as the Committee on Payments and Market Infrastructures (CPMI).