As explained in the section “Calculation Model of Initial Margin”, those margins are calculated following a parametric model (MEFFCOM2) and a Historical VaR model.
In both cases, EMIR compliant, the confidence level shall be higher than 99%.
For all the above, BME CLEARING´s margin calculation models, as a Qualified CCP under EMIR, shall be very robust.
Furthermore, back testing is carried out to control the adequacy of both the parameters and the margin model compared to the expected coverage.
How this back testing is carried out? Tests will be daily performed at Margin Account level:
Therefore, the Initial Margin in “D” is compared against the fluctuation of the position value between D and D+1, D and D+2, …, D and D+N, considering as the open position the one recorded at the end of “D” session and being “N” the number of days considered within the close-out period.
The result is aggregated at the account level and the most adverse outcome is selected. Back testing results will be daily disclosed through end-of-day data files to each Member of the CCP.
With the result of these back testings, BME CLEARING calculates the Coverage Ratio, which under EMIR shall be at least 99%.
According to Article 49 (EU) Regulation 648 / 2012, which defines the performance of back testing, developed in the BME CLEARING’s Back Testing Instruction, and Article 56 (1) of the Delegated Regulation (EU) 153 / 2013, if at any time the daily back tests performed would prove that the initial margin coverage does not reach the confidence level that the CCP must achieve, Initial Margin parameters included in this Circular can be immediately increased.