- Question ID
-
2015_1986
- Legal act
- Regulation (EU) No 575/2013 (CRR)
- Topic
- Market risk
- Article
-
285
- Paragraph
-
4
- COM Delegated or Implementing Acts/RTS/ITS/GLs/Recommendations
- Not applicable
- Article/Paragraph
-
.
- Type of submitter
-
Credit institution
- Subject matter
-
Definition of disputed margin call under Article 285(4)
- Question
-
What is the relevant definition of margin call dispute for the purpose of doubling the margin period of risk, under Article 285(4), for netting sets which have experienced a material number of extended disputes?
- Background on the question
-
According to Article 285(4) “If an institution has been involved in more than two margin call disputes on a particular netting set over the immediately preceding two quarters that have lasted longer than the applicable margin period of risk under paragraphs 2 and 3, the institution shall use a margin period of risk that is at least double the period specified in paragraphs 2 and 3 for that netting set for the subsequent two quarters”. The underlying rationale of this requirement is to prevent the reporting banks, when carrying out the calculation of the expected future exposure, from limiting collateralized exposures to the extent exceeding the credit support amount. This approach is too simplistic because it ignores that the collateral is not delivered immediately after the margin call is made. Indeed, margin calls can be disputed, and it may take several days for the reporting bank to realize that the counterparty is defaulting rather than disputing the call. At the same time, margin disputes may occur for several reasons but only some give rise to actual economic risk. In particular, from a counterparty credit risk management perspective only those margin disputes resulting in a failure to deliver the required amount of collateral by the counterparty are actually increasing the exposures. Margin calls disputed by the reporting banks are instead not cause for concern and therefore irrelevant for counterparty credit risk quantification.
- Submission date
- Final publishing date
-
- Final answer
-
Article 285(4) of Regulation (EU) No 575/2013 (CRR) states that "If an institution has been involved in more than two margin call disputes on a particular netting set over the immediately preceding two quarters that have lasted longer than the applicable margin period of risk under paragraphs 2 and 3, the institution shall use a margin period of risk that is at least double the period specified in paragraphs 2 and 3 for that netting set for the subsequent two quarters."
For the purposes of Article 285(4), a margin call dispute should be interpreted to mean any margin call dispute, including where institutions are disputing the margin call of their counterparty. - Status
-
Final Q&A
- Answer prepared by
-
Answer prepared by the EBA.
- Note to Q&A
-
Update 26.03.2021: This Q&A has been reviewed in the light of the changes introduced to Regulation (EU) No 575/2013 (CRR) and continues to be relevant.
Disclaimer
The Q&A refers to the provisions in force on the day of their publication. The EBA does not systematically review published Q&As following the amendment of legislative acts. Users of the Q&A tool should therefore check the date of publication of the Q&A and whether the provisions referred to in the answer remain the same.