New Charge Hits When Markets Get Too Wild for Bonds
Published Date: 3/11/2025
Notice
Summary
The Fixed Income Clearing Corporation (FICC) wants to add a new Volatility Event Charge to help manage risks during wild market swings. This change affects members who trade government and mortgage-backed securities and aims to keep the system safer when markets get shaky. The new charge could impact costs during volatile times and is up for review starting March 2025.
Analyzed Economic Effects
5 provisions identified: 1 benefits, 3 costs, 1 mixed.
New Volatility Charge Raises Margin Costs
If you are an FICC clearing member, FICC would add a Volatility Event Charge to your Required Fund Deposit that applies around scheduled events. The charge is calculated by multiplying your VaR Charge by no less than 10% and no greater than 30% (initially 10%), is assessed twice a day at GSD and once a day at MBSD, and generally covers the two Business Days before and the day of the scheduled event.
Segregated Indirect Participants Included
If you are a Segregated Indirect Participant recorded in a GSD Segregated Indirect Participant Account, the Volatility Event Charge would be assessed with respect to each Segregated Indirect Participant. The same 10%–30% multiplier (initially 10%) on the VaR Charge would apply.
Scheduled Events Narrowed to Payroll Data
On January 30, 2025, FICC updated the list of scheduled economic events for applying the special charge so that only Non-Farm Payrolls (NFP) and the Unemployment Rate remain for application of the special charge. The Volatility Event Charge would still apply during the coverage period when forward-looking volatility indicators exceed specified thresholds.
Impact Study: Large Charges, Better Resilience
During the Impact Study (April 15, 2024–August 2, 2024), FICC applied a 10% special charge on 19 of 77 Business Days (about 25%). The average special charge assessed was about $3.75 billion and $4.00 billion for GSD start-of-day and noon cycles, respectively, and $911.30 million at MBSD, and FICC reported reductions in backtesting deficiencies (e.g., GSD start-of-day deficiencies fell from 61 to 57, ~7%).
Rule Could Burden Smaller/Weaker Participants
FICC acknowledges the Volatility Event Charge could increase Required Fund Deposits and/or Segregated Customer Margin Requirements and may burden participants with lower operating margins or higher costs of capital more than others.
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