Saying How Versus Saying What – The Choice of Regulatory Style in Margin Policy

Butterworths Journal of International Banking and Financial Law 2022

4 Pages Posted: 16 Jun 2022

See all articles by David Murphy

David Murphy

London School of Economics - Law School

Date Written: May 2022

Abstract

Mandatory margin posting on derivatives portfolios is one of the key elements of post-2008 derivatives policy. Margin requirements often calculated using risk-based models. These models typically require more margin when markets are more stressed. This can create liquidity burdens on market participants just when they are hardest to meet. There are two main approaches to addressing this: requiring that particular tools to reduce variability are incorporated in all margin models; or placing limits on the variability of margin regardless of how it is calculated. This choice is practically important and leads to insights on differences in regulatory style.

Keywords: Central clearing, margin procyclicality, anti-procyclicality tools, initial margin, regulatory style, derivatives regulation

JEL Classification: G17

Suggested Citation

Murphy, David, Saying How Versus Saying What – The Choice of Regulatory Style in Margin Policy (May 2022). Butterworths Journal of International Banking and Financial Law 2022, Available at SSRN: https://ssrn.com/abstract=4129874 or http://dx.doi.org/10.2139/ssrn.4129874

David Murphy (Contact Author)

London School of Economics - Law School

Houghton Street
London WC2A 2AE, WC2A 2AE
United Kingdom

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