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The change to the margining model for the OTC market

Effective as of 1 April 2022 the margining model for the OTC market will change from Historical VaR to Expected Shortfall. The Expected Shortfall will be calculated at a confidence level of 99.5%. Currently, margins for the OTC market are calculated at a 99.7% confidence level. The change is due to, among others, increased volatility on the financial markets, including interest rate derivatives, which has been observed for a long period of time. The Expected Shortfall model allows for more adequate estimation of potential losses in the case of extreme changes as compared to HVaR, using the same confidence level, as it secures expected loss exceeding the VaR. As a result of the change in the margining model, the margin requirements for KDPW_CCP clearing members may increase.

The model change as proposed by KDPW_CCP received a positive opinion from an independent third party and was approved by the Polish Financial Supervision Authority (KNF) and ESMA on 26 January 2022.

The change to the margining model is neutral to the scope and structures of system messages exchanged with participants in connection to the provision of the OTC clearing service.

Schedule of KDPW_CCP’s actions related to the introduction of Expected Shortfall:
  • 15 March 2022– the KDPW_CCP S.A. Management Board adopts a resolution to change the margining model;
  • 1 April 2022 – the model change is implemented in the production system, starting with EOD margins (intraday margins at that date will be determined under the existing model). The implementation will result in a one-off increase in margin requirements to be posted on the following business day morning, i.e., 4 April 2022. Please note the need to secure additional cash.
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    Last modified: 21-03-2022 Go up