EACH has published a paper called ‘EACH views on portfolio margining,’ which was drafted by the EACH Risk Committee. This paper aims to provide the views of the European Association of CCP Clearing Houses (EACH) on portfolio margining and to make concrete suggestions about how we believe the current legislative provisions in EMIR can be improved. EACH believes that the CCPs’ risk management framework would be strengthened through:
· A portfolio margining model which:
o Follows a principles based approach that targets the final objective (i.e. adequate risk management) rather than a prescriptive way of achieving it (e.g. rules about correlations)
o Ensures the performance of the model through a thorough back testing framework that includes ‘micro back tests’ , together with additional measures such as sensitivity analysis and fire drills.
· Legislative provisions that are:
o Model-independent (i.e. they do not prescribe, directly or indirectly, any particular type of risk model).
o Reflect the use of risk factors, rather than the types of financial instruments, to allow risk offsets.
o Ensure that risk calculations with regard to portfolio margining are consistent with the liquidation procedures.