IIROC releases concept paper on portfolio margining

September 19, 2012

The Investment Industry Regulatory Organization of Canada (IIROC) released a concept paper this week to solicit comments to assist staff in its review and assessment of whether portfolio-based margining could provide a feasible alternative to current margin requirements for determining dealers' regulatory capital levels and margin lending limits for certain sophisticated clients.

Currently, margin must generally be provided on a position-by-position basis and calculated as a set percentage of the market value of each account position or underlying security to each account position for investment products held in a dealer's proprietary inventory account. Portfolio-based margining instead bases capital or margin requirements on the expected market value losses of an overall portfolio of securities in an account.

recently commissioned study of the feasibility of using a portfolio-based methodology recommends that IIROC adopt such a methodology in order to achieve a better match between funding, collateral and risks in the marketplace, reduce the frequency and impacts of systemic risk events and keep pace with developments in other major world markets.

IIROC is asking stakeholders to consider a number of specific questions in formulating responses to the concept paper, including whether utilizing the methodology should be mandatory and whether it should be available only to dealers and/or "qualifying non-individual accounts" (acceptable institutional (AI), acceptable counterparty (AC) and regulated entity (RE) accounts) that maintain a set capital amount. For more information, see IIROC Notice 12-0275.

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