Commission Delegated Regulation (EU) 2022/244 of 24 September 2021 supplementing Regulation (EU) 2019/2033 of the European Parliament and of the Council with regard to regulatory technical standards specifying the amount of total margin for the calculation of the K-factor ‘clear margin given’ (K-CMG) (Text with EEA relevance)

• CELEX: Delegated Regulation (EU) 2022/244
• Articles: 3

Article 1 Calculation of the amount of the total margin required

1.   The amount of the total margin referred to in Article 23(2) of Regulation (EU) 2019/2033 shall be the required amount of collateral comprising the initial margin, variation margins and other collateral, as required by the clearing member based on its margin model of the investment firm for the trading desks subject to K-CMG. For the purposes of this Regulation, ‘trading desk’ shall mean a trading desk as defined in point (144) of Article 4(1) of Regulation (EU) No 575/2013 of the European Parliament and of the Council  ( 3 ) .

2.   Where the clearing member does not differentiate between margins that are required for the trading desk that is subject to K-CMG and margins that are required for other trading desks, the investment firm shall consider the total of margins required for all trading desks as margins under paragraph 1.

3.   Fees paid by the investment firm to the clearing member for making use of its clearing member services shall not be considered as margins under paragraph 1.

4.   Where the clearing member updates the total margin required more than once during a day, the total margin required on that day shall be the highest of those amounts of total margins required by the clearing member during that day.

5.   Where an investment firm makes use of the services of more than one clearing member for the trading desks subject to K-CMG, the amount of the total margin referred to in Article 23(2) of Regulation (EU) 2019/2033 shall be calculated on a daily basis adding the amounts of margins required by each clearing member as laid down in paragraph 1 of this Article.

Article 2 Prevention of arbitrage

1.   The requirement laid down in Article 23(1), point (e), of Regulation (EU) 2019/2033 shall be fulfilled where all the following conditions are satisfied:

(a)

where the investment firm calculates K-CMG capital requirements on a portfolio of cleared positions assigned to one trading desk, it applies the same methodology to all the positions of that trading desk for a continuous period of at least 24 months or the business strategy or operations of the group of dealers of that trading desk has changed to the extent that they can be considered a different trading desk;

(b)

the investment firm uses K-CMG consistently across trading desks that are similar in terms of business strategy and trading book positions;

(c)

the investment firm has policies and procedures in place showing that the choice of portfolio(s) subject to K-CMG would reflect the risks of an investment firm’s trading book positions, including the expected holding periods, the trading strategies applied and the time it could take to hedge out or manage risks of its trading book positions;

(d)

the investment firm has policies and procedures in place enabling it to compare the capital requirements calculated on the basis of K-CMG with the capital requirements calculated on the basis of K-NPR and to adequately reasoning any difference between them taking into account the factors set out in paragraph 2 in each of the following cases:

(i)

where a change in the business strategy of a trading desk results in a change of 20 % or more in the capital requirements for that trading desk based on the K-CMG approach;

(ii)

where a change in the clearing member’s margin model results in a change in the margins required of 10 % or more for the same portfolio of underlying positions for a trading desk;

(e)

the investment firm makes use of the outcome of the K-CMG calculation in its risk management framework and regularly compares the results of its own risk assessment with the margins required by clearing members;

(f)

the investment firm has compared the capital requirements calculated by K-CMG with the capital requirements calculated by K-NPR for each trading desk at the point of the assessment by the competent authority, and has provided the competent authority with adequate justification of any difference between them taking into account the factors set out in paragraph 2.

2.   For the purposes of paragraph 1, points (d) and (f),the competent authority shall take into account the following factors in order to assess whether the difference in capital requirements calculated in application of K-CMG and K-NPR is justified:

(a)

the reference to the relevant trading strategies;

(b)

the investment firm’s own risk management framework;

(c)

the level of the investment firm’s overall own funds requirements calculated in accordance with Article 11 of Regulation (EU) 2019/2033;

(d)

the results of the supervisory review and evaluation process, if available.

Article 3 Entry into force

This Regulation shall enter into force on the twentieth day following that of its publication in the Official Journal of the European Union .