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:

  • The Initial Margin is calculated for each account, being equal to the margin minus the market value adjusted margin: open position valued at the closing price for options and open position multiplied by the difference between the end-of-day settlement price and the price of the position for the Energy swaps and repos.
  • A check is performed in order to see whether the loss incurred by the position has been covered by the Initial Margin during the corresponding close-out period, that is:
    • 2 days for Financial Derivatives, Energy (only for Electricity), Cash Equities and Fixed income Segments; and
    • 5 days for the Energy (only for Natural Gas contracts) and Interest Rate Swaps (IRS) Segments.

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.

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