On November 6, 2020, ISDA submitted a response to a consultation by the Prudential Regulation Authority (PRA) on the calculation of risks not in value at risk (VAR) and stressed VAR.
Market volatility related to the COVID-19 outbreak has highlighted elements of the market risk framework that may lead to an excessively procyclical increase in own funds requirements during periods of stress. For two of those elements (frequency of calculation for the risks-not-in-VAR measure and identification of a ‘period of significant financial stress relevant to the institution’s portfolio’ for the stressed VAR calculation), the PRA proposes to set expectations that are intended to attenuate the procyclicality in own funds requirements for market risk.
The industry commends the PRA’s timely actions throughout 2020 to provide support and guidance to firms during the period of severe market volatility caused by COVID-19, although there is concern that the proposals in this consultation may lead to overly burdensome operational complexities without the desired outcome of reducing the volatility of market risk capital requirements during a crisis period.
Documents (1) for Consultation Response on Risks Not in VAR and Stressed VAR
Latest
The ISDA Notices Hub: One Year On
In times of war, armed forces are often required to mobilize over large distances at short notice. The most dreaded response to the question of how they are to be transported is ‘by LPC’, meaning ‘leather personnel carrier’ – the...
ISDA Response to OSC Call for Feedback
On June 26, ISDA responded to the Ontario Securities Commission’s (OSC) consultation on facilitating access to its regulatory framework and reducing the burden for capital markets participants by publishing a machine-readable dataset of regulatory instruments. ISDA's comments are supportive of...
ISDA Comments on EP's MISP Draft Reports
On July 15, ISDA shared comments with policymakers in the European Union on the European Parliament’s (EP) draft reports by Member of the European Parliament (MEP) Markus Ferber and MEP Eero Heinäluoma on the Market Integration and Supervision Package (MISP)....
Building Markets, Creating Opportunity
Deep and liquid derivatives markets are fundamental to the development of well-functioning financial markets and healthy economies. They support lending, investment and financial stability, creating the certainty needed for economic growth. But strong derivatives markets do not emerge by chance....