Draft statement of policy: The Bank of England’s approach to supervisory processes (model changes, recognition orders and variations of recognition orders) and margin permissions

1: Introduction

1.1 This statement of policy (SoP) sets out the Bank of England’s (Bank’s) approach to:

• changes to models and parameters, including notifications of such changes and permissions to make changes classed as ‘material’, as set out in chapter 13 of the Review and Testing of Models and Parameters Part of the Bank of England FMI Rulebook: UK Central Counterparties Instrument (hereon CCP rules) and section 296B of FSMA;
• recognition orders and variation of recognition orders, as set out in sections 288 and 290 of Financial Services and Markets Act 2000 (FSMA) (granting recognition to a firm for the provision of clearing services as a CCP) and 290ZA of FSMA (varying a CCP’s recognition order to cover new products and services); and
• permissions related to margin, including permissions to (i) adopt a model as set out in rule 3.2 of the Margin Requirements Part, or (ii) to modify rules 2.12, 3.13(4)(c)(v), and 3.16 of the Margin Requirements Part of the CCP rules.^{footnote [1]}

1.2 The approach to permissions to make material changes to models and parameters and those related to margin reflect the Bank’s overall approach to giving permissions set out in the CCP rules, in line with the SoP on the Bank of England’s approach to rule permissions and waivers. Where relevant, this SoP also sets out the Bank’s approach for variations to those permissions, and circumstances in which the Bank may take the decision to revoke a permission. When giving, varying or revoking these permissions, the Bank would exercise its powers under section 138BA (s138BA) of FSMA, as applied and modified by paragraph 10 of Schedule 17A to that Act.^{footnote [2]}

1.3 The section on the Bank’s approach to recognition orders is relevant to all UK entities seeking recognition to provide clearing services in the UK. The section on variations of recognition orders is relevant to all recognised UK CCPs. The sections on model changes and margin permissions are relevant to all recognised UK CCPs and systemic overseas CCPs.

1.4 The Bank encourages early engagement by firms that are considering submitting an application for a recognition order, a variation of a recognition order or a permission, via their usual supervisory contact. The nature of this engagement will depend on the complexity and scale of the proposed application, and the CCP’s readiness to submit a formal application.

1.5 The Bank is required to publish details of permissions that have been given unless it considers that it would be inappropriate or unnecessary to do so. In addition, the Bank will publish information on how long it takes to make decisions on applications for recognition orders, variations of recognition orders and material model changes.

1.6 This SoP should be read in conjunction with the CCP rules, the relevant provisions in FSMA, and the proposed statutory instrument published by HM Treasury containing amendments to Part 18 of FSMA 2000 (The Central Counterparties (Amendment) Regulations 2025).

2: The Bank’s approach to notifications of model changes and permissions to make material model changes [Review and Testing of Models and Parameters rules 13.1 and 13.4]

1: Overview

1.1 This chapter sets out the Bank’s approach to assessing the materiality of a CCP’s proposed changes to models and parameters, including changes resulting from the introduction of new products within existing recognition orders and the acceptance of new collateral types (abbreviated henceforth as ‘model changes’), as notified to the Bank in accordance with rule 13.1 of the Review and Testing of Models and Parameters Part of the CCP rules. It also sets out the Bank’s approach to applications for permissions which allow a CCP to make a material change to models and parameters (‘material model change permissions’), in accordance with rule 13.4 of the Review and Testing of Models and Parameters Part of the CCP rules.

1.2 The Bank is required under section 296B(9) and 296B(10)(a) of FSMA to prepare and publish a statement of policy setting out the criteria to which it will have regard when assessing the materiality of a CCP’s proposed model change. Section 2 of this chapter satisfies this requirement. Section 296B(10)(b) of FSMA provides that the statement of policy may also contain further information about how the Bank intends to exercise its functions regarding applications for material model change permissions. Sections 2 and 3 of this chapter of the SoP contain that further information. When giving permissions to make material model changes, the Bank would exercise its powers under s138BA of FSMA to give, vary or revoke a permission, based on the criteria set out below. In cases where the materiality threshold is not met, but the Bank considers it appropriate to require a CCP not to make the change, the Bank would exercise its powers under section 55L of FSMA, as applied and modified by paragraph 9B of Schedule 17A of FSMA.

1.3 This chapter is relevant to all recognised UK CCPs and systemic overseas CCPs which have obtained a recognition order to provide clearing services in the UK.

1.4 As set out in rule 13.1 of the Review and Testing of Models and Parameters Part of the CCP rules, CCPs must notify the Bank in advance of any proposed changes to their models and parameters. Under rule 13.4, they must apply to the Bank for prior permission before making material changes to their models (the criteria for determining materiality of a proposed change are set out in Annex 2). This chapter sets out the Bank’s approach to assessing proposed changes to a CCP’s model or parameters to calculate margin, default fund contributions, collateral requirements and other risk control mechanisms, including:

1. determining, upon notification of a proposed model change, whether the change is material or non-material;
2. deciding whether or not to give permission to the CCP to make changes to the model determined by the Bank to be material.

This chapter also sets out the Bank’s approach to cases where the Bank finds material deficiencies in models and parameters or default risk management of a CCP. In these cases the Bank may impose additional requirements on the CCP in relation to non-material changes using its power under section 55L of FSMA.

1.5 The Bank encourages early engagement by CCPs that are considering a model change, via their usual supervisory contact. The nature of this engagement will depend on the complexity and scale of the proposed application, and the CCP’s readiness to submit a formal application.

1.6 This chapter should be read in conjunction with the ‘Review and Testing of Models and Parameters’, ‘Margin Requirements’, ‘Default Procedures’, ‘Default Fund’, ‘Default Waterfall’, ‘Collateral’ and ‘Liquidity Risk Controls’ Parts of the CCP rules.

2: Notifications of model changes

2.1 This section sets out the Bank’s approach to assessing the materiality of a CCPs’ proposed model/parameter changes where a CCP notifies it in advance of making any such changes in accordance with rule 13.1 of the Review and Testing of Models and Parameters Part.

2.2 A CCP must notify the Bank in advance of any changes that it proposes to make to the models and parameters adopted to calculate its margin, default fund contributions, collateral requirements and other risk control mechanisms, in accordance with rule 13.1^{footnote [3]}. This rule pertains to any change to the clearing risk model beyond the regular intended operation, including any change resulting from the introduction of a new product or new collateral.

2.3 Clearing risk models are the model (and sub-models) used:

• to set the initial margin requirements for all members, including regulatory initial margin and add-ons;
• to set the default fund contributions and their seniorities for all members;
• to set the haircuts and limits for collateral posted to meet initial margin and default fund requirements; and
• to estimate the liquid resources required and available in stress testing to demonstrate compliance.

2.4 Regular intended operation includes regular adjustment of model parameters as part of the intended design of the model, for example the regular updating of scanning ranges in a SPAN model or the integration of newly observed market stress events into the historical stress scenario suite.

• Unless specified above, regular intended operation does not include recalibration of a model in response to poor empirical performance, a change of market conditions, or to improve accuracy or fix a weakness, even if done to address a finding from a model validation.

2.5 New products include all those with a risk factor that is not identical to the one already approved.

• This includes any new contract with different features to existing contracts, such as: settlement process, underlying or settlement asset, notional amount (e.g. mini versions of existing futures), settlement times (e.g. adding weekly expiries for a monthly future or extending eligibility of OTC contracts to a longer maturity), or conversions and modifications to contracts that alter the risk (e.g. changing the discount rate used for pricing).
• This excludes listing new expiry dates of futures, or trades with an underlying that undergoes a routine update such as a new CDS index, carbon contracts in a new emission window, or repo and bond futures as new issuances occur.

2.6 New collateral accepted comprises all new collateral types with risks not identical to those already approved.

• This includes securities from a different issuer, in a different currency, or with a different credit seniority.
• This excludes any new collateral with the same credit risk profile, for example a new issuance with the same credit seniority; it also excludes the same collateral type received in a different way (e.g. title transfer or triparty repo).

2.7 Unless a model change is proposed in connection with an application for a variation of a recognition order,^{footnote [4]} the notification envisaged by rule 13.1 is a written self-assessment, in the form of the Model Change Notification Form (MCNF) at Annex 1. The MCNF must include an assessment conducted against the materiality criteria set out in Annex 2. A CCP should submit the MCNF to the Bank via their usual supervisory contact address. The Bank will consider that submission of the MCNF in which all required fields have been completed correctly fulfils this rule. Incomplete submissions, or submissions containing inaccuracies, will not be considered to be a notification for the purposes of rule 13.1 or section 296B(2) of FSMA and a CCP will need to submit a new MCNF.

2.8 Upon receipt of a CCP’s completed MCNF, the Bank will, within a statutory deadline of 10 working days, confirm to the CCP in writing whether it determines the proposed change to be material or non-material. In making its determination, the Bank will have regard to the matters set out in Annex 2. Changes confirmed in writing by the Bank to be non-material may be effected immediately by the CCP.

3: Permissions to make material model changes

3.1 This section sets out the Bank’s approach to applications for permission under rule 13.4 of the Review and Testing of Models and Parameters Part of the CCP rules to make a change to a model/parameter which the Bank has determined to be material under section 296B(2) of FSMA.

3.2 When giving these permissions, the Bank would exercise its powers under s138BA of FSMA to give, vary or revoke a permission, based on the criteria below.

Initial application for permission

3.3 If a proposed change is assessed by the Bank to be material in accordance with the materiality criteria set out in Annex 2, the CCP must submit an application to the Bank for permission to make the change, as set out in rule 13.4 of the Review and Testing of Models and Parameters Part of the CCP rules. This must be in writing and consist of a completed Section 138BA rule permission application form as set out in the Bank’s SoP on its approach to rule permissions and waivers, together with supporting evidence, as set out in the section below on Supporting evidence regarding the criteria for permission.

3.4 The application and supporting evidence should provide all of the following:

1. confirmation that the CCP has met and continues to meet the requirements set out in the ‘Review and Testing of Models and Parameters’, ‘Margin Requirements’, ‘Default Procedures’, ‘Default Fund’, ‘Default Waterfall’, ‘Collateral’ and ‘Liquidity Risk Controls’ Parts of the CCP rules; and
2. confirmation that no facts have been omitted which if known by the Bank could influence its decision regarding whether to give permission for a material model change.

3.5 In cases where a CCP intends to effect a material model change as part of a variation of its recognition order, it does not need to submit the application and supporting evidence referred to at 3.3. In these instances, the application requirements and supporting evidence set out under 3.4 of Chapter III instead apply, and serve as the application for a material model change permission. The CCP need only submit the supporting evidence set out in the sub-section on Supporting evidence regarding the criteria for a variation of a recognition order in that chapter.

Supporting evidence regarding the criteria for permission

3.6 Where a CCP seeks permission to make a material model change, the supporting evidence must contain sufficient information to allow the Bank to assess whether the proposed change is consistent with the ‘Review and Testing of Models and Parameters, Margin Requirements’, ‘Default Procedures’, ‘Default Fund’, ‘Default Waterfall’, ‘Collateral’ and ‘Liquidity Risk Controls’ Parts of the CCP rules, and the Factors the Bank will consider set out below.

3.7 The application and supporting evidence should include, as relevant, the following:

1. Section 138BA rule permission application form.

2. A unique application name.

3. Index of documentation (enumerated list of all documents that comprise the application).

4. A short description of the proposed change.

5. Current implementation plan including target launch date range and key dependencies.

6. Key governance documents:

1. All relevant committee papers and minutes/advice provided.
2. Independent validation report and management response / completed action log.

7. Reason for the application, including any details of similar prior applications.

8. A self-assessment by the CCP against the CCP’s identified regulatory requirements, including reasoning and evidence necessary to demonstrate compliance (i.e. not just an assertion of compliance).

9. Current model/parameter: documentation describing the purpose and operation of the current model that is being changed, if this model currently exists, for example a policy and methodology document.

10. Proposed model/parameter: a comprehensive description of the purpose and design of the proposed new model, with enough information to allow an external reviewer to conduct a detailed validation. For complex models, a summary of the proposed changes and worked examples are encouraged.

11. An impact assessment, which should include the quantitative results of the materiality assessment above, with an additional break down showing what is driving this impact, for example how the proposed change affects margin requirements for different types of cleared portfolios and types of member, and the contributions of different components of the proposed new model.

12. Procyclicality testing to evaluate the potential impact on member resources of the new model, including evidence that all members are aware of these impacts (this is supplemented as below if changes are proposed to the initial margin model).

If changes are proposed to the initial margin model:

13. Back testing: if the change relates specifically to the market risk model that is used to forecast future market prices:

1. a description of the methodology for back testing margin coverage, including:

1. what portfolios were used (which should include: all key single contracts, common trading strategies, and realistic cleared portfolios), with information on if/how the portfolios mature during the test period;
2. which model(s) are being tested (which should include at least the proposed model and, where possible, the current model for comparison), specifying which add-ons have been included and which excluded;
3. the time period(s) used for the test (at least one year, ideally at least ten years, and not older than one year); and
4. a description of the performance criteria and how they are calculated (including at least simple realised coverage, with no adjustments, plus the output of a statistical test of the model’s adequacy), for individual portfolios and as aggregates of groupings (e.g. similar portfolio types and in total) for each model.

2. The numerical results described in (1)(4) for each portfolio, model, and time period, and also in aggregate.

3. The CCP’s own assessment of the testing performance, with reference to its target margin coverage.

14. Procyclicality testing:

1. A description of the procyclicality testing methodology, including the same as (a)(1)-(4) above, except with different performance criteria that are relevant to the CCP’s own procyclicality risk appetite.
2. The numerical results of the test for each portfolio, model, and time period, and also in aggregate.
3. The CCP’s own assessment of the testing performance, with reference to its procyclicality risk appetite.

15. Sensitivity analysis: where changes are proposed to important parameters or modelling choices, or new key parameters or modelling choices are introduced, the CCP should provide descriptive and/or quantitative evidence that the values of these parameters / modelling choices have been selected appropriately. The CCP should explain how it has decided which parameters and modelling choices are important and how it selected values for these.

If changes are proposed to the stress scenarios or scenario-generating model:

16. Detailed information on new or expanded stress scenarios used to meet regulatory requirements for the new trades, including:

1. For each scenario, numerical values of its major shocks, specifying for each shock the market variable and return type.
2. For each historical stress scenario, the historical date period and return duration (e.g. ‘1-7 April 2025’). For all historical scenarios, a description of the methodology used to search and select scenarios from the historical data period, and what this data period is.
3. For each qualitative and forward-looking scenario, a description of the scenario and an explanation of its calibration.
4. For all quantitative and forward-looking scenarios, a description of the methodology used to generate the scenarios, including which market variables are included in the method and the procedure (if any) for ongoing recalibration.

If changes are proposed to the eligible collateral:

17. The following information for each new type of collateral accepted:

1. If it is a bond, the bond issuer, maturity range, currency of denomination, settlement venue, and total issuance;
2. The current planned levels for haircuts and all applicable limits (noting these may be different at launch).

3.8 The cover letter must also list other applications to the Bank for permission submitted by the CCP or currently foreseen within the next six months, together with corresponding application dates.

Assessment of the application – general

3.9 Where the Bank receives an application for a material model change permission, including as part of an application for a variation to its recognition order which involves a material model change, and it decides to give permission for use of these models or parameters on appropriate grounds, the permission will specify whether the permission given is that sought by the CCP or whether conditions have been applied.

Factors the Bank will consider

3.10 The Bank will make a judgement of whether the CCP will continue to meet all regulatory requirements after implementing the proposed changes in the application and of any financial stability impact of the model change.

3.11 This will be based on:

1. a desk-based review of the application, the Bank’s existing supervisory judgement of the applicant, and any further engagement with the applicant during the process, to achieve a level of assurance that is proportional to a conservative estimate of the potential impact of the proposed changes in the application;
2. a proportionate interpretation of the relevant regulatory requirements, taking into account the systemic importance of the clearing services affected by the application;
3. any potential positive or negative impacts of the proposed changes on the wider financial system (as part of the Bank’s financial stability objective);
4. the views of other regulatory authorities whose objectives may be affected by the application.

3.12 The Bank will evaluate:

1. the conceptual soundness, comprehensiveness, and appropriateness of the proposal for the risks it aims to model;
2. the results of model testing, including on financial resource adequacy (e.g. margin coverage for a margin model) and potential procyclicality effects;
3. the adequacy of the firm’s independent validation and response to issues identified therein.

Application timelines

3.13 The Bank will confirm receipt of the application of the CCP. The Bank will assess the completeness of the information provided and conduct a review of the proposed changes within a statutory deadline of 60 working days. The 60-working-day assessment period begins from the day on which a complete application for permission is made or (if later) the day on which the Bank determines the proposed change to be material. An application will be considered complete by the Bank if the application covers all the matters set out in the sections ‘Initial application for permission’ and ‘Supporting evidence regarding the criteria for permission’.

3.14 Should the Bank need to request further information within this deadline, the assessment period will pause until the requested information has been received, and an extra 10 working days will be added to it, in accordance with section 296B(7) of FSMA. Any subsequent requests for information will not affect the deadline. Persistent failure to provide the requested information may result in rejection of the application.

3.15 In cases where a CCP intends to effect a material model change as part of a variation of its recognition order, the application procedure and 80-working-day assessment period described for variations of recognition orders Chapter III, Section 3 will instead apply.

3.16 The Bank will publish information on how long it takes to make decisions on permissions applications.

Decision on the application

3.17 When the Bank has reached a decision on an application for a material model change permission, it will communicate this in writing to the CCP.

3.18 Where the Bank gives permission, the written notice will specify the scope of the permission, including any conditions attached. Where the Bank does not give the permission, it will specify the reasons on which the decision is based.

Varying or revoking a permission

3.19 Where a material model change no longer satisfies the criteria under which the permission for the arrangement was given, the CCP should notify the Bank of this. The Bank will decide on either of the following actions: a) to introduce new conditions or amend the conditions that the permission is subject to; or b) to revoke permission for the model change and give a timeline for alternative arrangements to deliver the relevant service to be in place.

3.20 The Bank will notify the CCP, of its reasons for varying or revoking a permission. Where the CCP is aware of a change in circumstance whereby the model change may no longer fulfil the conditions under which the permission for the arrangement was given, it should inform the Bank of this change in circumstance.

Consideration of the cumulative impact of model changes

3.21 The Bank will in the course of its regular supervision of CCPs consider the cumulative impact of successive model changes (including non-material changes) over time, and whether this warrants ex-post review.

Imposition of a requirement to apply for permission to make a non-material change

3.22 There may be cases where the materiality threshold at Annex 2 is not met, but the Bank considers it appropriate to require a CCP not to make the change to its model until the Bank is satisfied that it is appropriate for the CCP to do so. Such cases may arise if the Bank considers that there are material deficiencies in the models or default risk management of a CCP, and it therefore considers that it is desirable to apply additional scrutiny in furtherance of its Financial Stability Objective. In such cases, the Bank may use its power at section 55L of FSMA to require the CCP not to make the change or to take or refrain from taking other action in accordance with the scope of the power.^{footnote [5]}

3: The Bank of England’s approach to recognition orders and variations of recognition orders [Sections 288, 290 and 290ZA FSMA 2000]

1: Overview

1.1 This chapter sets out the Bank of England’s (Bank) approach to granting recognition to a firm for the provision of clearing services as a CCP under sections 288 and 290 of FSMA (s288 and s290), and varying an CCP’s recognition order to cover new products and services under section 290ZA of FSMA (s290ZA).

1.2 This chapter is relevant to all Bank-supervised central counterparties (CCPs) and UK entities which are planning to apply to the Bank for recognition as a UK CCP.

1.3 The Bank encourages early engagement by firms that are considering an application for recognition or to vary an existing recognition order. Entities seeking recognition as a UK CCP should make contact with CCP supervision teams in the Bank’s Financial Market Infrastructure Directorate, whereas recognised UK CCPs should use their usual supervisory contact. The nature of this engagement will depend on the complexity and scale of the proposed application, and the firm’s readiness to submit a formal application.

1.4 Given the criteria for determining whether an application for a variation of a recognition order is material or non-material are the same as those applied to model changes, this chapter also should be read in conjunction with Chapter II above.

2: Recognition orders

2.1 This section sets out the Bank’s approach to applications from firms seeking recognition to provide clearing services as CCPs. When granting recognition, the Bank would exercise its powers under sections 288 and 290 of FSMA.

Initial application for recognition

2.2 A firm seeking recognition to provide clearing services under sections 288 and 290 must submit an application comprising the documentation listed under the Supporting evidence sub-section below.

Supporting evidence regarding the criteria for recognition

2.3 The application and supporting evidence must include, non-exhaustively:

1. The requirements set out in sections 288(2) and (3) of FSMA.
2. A self-assessment of compliance, with detailed references to supporting documents or other evidence of compliance, against:
   1. each Part of the CCP rules;
   2. other relevant requirements in FSMA, including Parts 5 and 6 of the Schedule to the Financial Services and Markets Act 2000 (Recognition Requirements for Investment Exchanges, Clearing Houses and Central Securities Depositories) Regulations 2001;
3. the Financial Markets and Insolvency (Settlement Finality) Regulations 1999;
4. the Bank of England’s policies on:
   1. Operational Resilience of FMIs;
   2. outsourcing and third-party risk management for FMIs.
   
   For permissions related to margin, as described in Chapter IV [in accordance with rules 3.2, 2.12, 3.13(4)(c)(v), or 3.16 of the Margin Part of the CCP rules]:
   3. Section 138BA rule permission application form.
   4. Relevant supporting evidence set out in Supporting evidence regarding the criteria for permission of the Chapter IV below.

2.4 The Bank will request any additional documentation from the applicant as required.

Factors the Bank will consider

2.5 The Bank will make a judgement of whether the CCP will meet all requirements set out in the CCP rules and recognition requirements (see section 286(1) of FSMA), and of any financial stability impact of its operations, in line with the Bank’s duty to protect and enhance the stability of the financial system of the UK, as per section 2A(1) of the Bank of England Act 1998. This judgement will depend on the following factors:

1. a desk-based review of the application, and any further engagement with the applicant during the process, to achieve a level of assurance that is proportional to a conservative estimate of the potential impact of its operations;
2. the relevant regulatory requirements, taking into account the likely systemic importance of the proposed clearing services in the application;
3. any potential positive or negative impacts of the proposed operations on the wider financial system (as part of the financial stability objective);
4. the views of other regulatory authorities whose objectives may be affected by the application.

Application timelines

2.6 Upon receipt of the CCP’s application, the Bank will assess the completeness of the information supplied and conduct a review of the application within a statutory deadline of 120 working days.

2.7 Where the Bank has considered an application to be complete, this will not prevent the Bank from requesting additional information necessary for carrying out its assessment. The request should specify the additional information required and the reasons for the request.

2.8 Should the Bank need to request further information within this timeframe, the assessment period will pause until the requested information has been received, and an extra 30 working days will be added to the deadline, in accordance with section 290(1CC) of FSMA. Any subsequent requests for information will not affect the deadline. Persistent failure to provide the requested information may result in rejection of the application.

Decision on the application

2.9 When the Bank has reached a decision on an application, it will communicate this in writing to the firm.

2.10 Where the Bank imposes requirements upon approval of an arrangement, or rejects an application, it will state the reasons on which the decision is based.

2.11 The CCP should notify the Bank of any material changes that may affect its ability to comply with Bank rules.

3: Variations of recognition orders

3.1 This section sets out the Bank’s approach to applications from recognised UK CCPs seeking to vary their recognition order to cover new products and services.

3.2 When granting variations of recognition orders, the Bank would exercise its powers under s290ZA(1) of FSMA 2000 to vary a recognition order by adding or removing services (including by adding or removing activities or classes of financial instruments or other product).

Initial application for a variation of a recognition order

3.3 A CCP seeking a variation of its recognition order should assess its intended new service against the materiality criteria in Annex 2. The proposed addition will be considered material if it satisfies any one of the criteria listed.

3.4 The CCP should submit an application comprising documentation set out in the sub-section below on Supporting evidence regarding the criteria for a variation of a recognition order. This should include:

1. for non-material applications: documentation listed under All applications below;
2. for material applications: documentation listed under All applications, plus either Supplement 1 or Supplements 1 and 2, according to whether new risk models or parameters, or material model or parameter changes, are required.

3.5 Non-material applications and material applications will be subject to the timelines set out in the subsection on Application timelines below.

Supporting evidence regarding the criteria for a variation of a recognition order

3.6 The application and supporting evidence should include, as relevant, the following:

All applications, including non-material variations of a recognition order

1. A unique application name

2. Index of documentation (enumerated list of all documents that comprise the application)

3. A short description of the proposed change or new product, including an assessment of materiality against the criteria set out in Annex 2.

4. Current implementation plan including target launch date range and key dependencies.

5. Key governance documents:

1. All relevant committee papers and minutes/advice provided.
2. Independent validation report and management response / completed action log.

6. Reason for the application, including any details of similar prior applications.

7. A self-assessment by the CCP against the CCP’s recognition requirements, including reasoning and evidence necessary to demonstrate compliance (i.e. not just an assertion of compliance).

8. New trade type list: a full list of all new trade types that would be cleared, or a complete description of the new eligibility criteria for cleared trades. The list should specify all important contract specifications such as maturities, settlement type, settlement values, variation margin currency, settlement venue and trade source.

9. Trade sources: information on the trade sources that are expected to be live at launch, e.g. names of trading venues or a short description of the matching and registration process.

10. Price sources: information on data sources used to price the new trades in order to calculate variation margin, regulatory initial margin and stressed loss for each new trade. Where multiple price sources are needed, provide the time period covered by each one used. Where proxy data are needed, include detail on how the proxy is used, including any adjustments made.

11. An explanation of whether and how the CCP intends to make changes with respect to:

1. models/parameters used to compute initial and variation margin and stressed losses;
2. settlement processes (including step-by-step worked examples where different to existing processes);
3. default management processes (such as whether the new trades will be hedged and/or auctioned alongside existing trades or separately).

12. A confirmation of any unchanged models/parameters, settlement or default management processes.

Supplement 1: Material variations of a recognition order

Material model and parameter changes: if any new risk models or parameters (including for setting regulatory initial margin) or material model or parameter changes are required to risk-manage these contracts, include the additional evidence from Supplement 2.

13. Pricing models: a detailed explanation of the process and fallbacks used to price the new trades using available market data.

14. Risk models: in addition to the above, process and methodology documentation describing how the initial margin and stress testing models will apply to the new trades from available market data to the final output. These should include a comprehensive description of the purpose and design of the models, with enough information to allow an external reviewer to conduct a detailed validation. For complex models, a summary of the proposed changes and worked examples are encouraged.

15. Intraday risk management: information on the hours/days when the CCP will accept registrations of the new trades, what types of trades can be accepted (e.g. block trades), the trading hours of each trade source expected to be live at launch, and the planned intraday risk management procedures such as: any pre-execution or pre-registration risk checks, times of planned end-of-day and intraday margin runs and the process for ad hoc margin runs, intraday margin calling thresholds, procedures for risk monitoring outside of margin calling hours, and any other key intraday events such as fixings and settlement windows.

16. Default fund: if the new trades will be covered by an existing default fund, information how the default fund will be sized and allocated (including credit seniority) among participants trading the new contracts, where different to the existing contracts. If a new structure is proposed (e.g. to allocate losses arising from the new trades to those most actively trading it), a worked example to illustrate how losses will be allocated.

17. Stress testing: in addition to the above, detailed information on new or expanded stress scenarios used to meet regulatory requirements for the new trades, including:

1. For each scenario, numerical values of its major shocks, specifying for each shock the market variable and return type.
2. For each historical stress scenario, the historical date period and return duration (e.g. ‘1-7 April 2025’). For all historical scenarios, a description of the methodology used to search and select scenarios from the historical data period, and what this data period is.
3. For each qualitative and forward-looking scenario, a description of the scenario and an explanation of its calibration.
4. For all quantitative and forward-looking scenarios, a description of the methodology used to generate the scenarios, including which market variables are included in the method and the procedure (if any) for ongoing recalibration.

18. Funding liquidity risk: if the new trades introduce a new type of liquidity risk for the CCP to manage, a description of this risk and the CCP’s approach to mitigate it, including (where not covered below) testing results.

19. A draft copy of the rulebook that covers normal and default procedures, plus details of any other policies and procedures that would be modified under the proposal.

If a new default waterfall is being added:

20. The default waterfall: a summary describing in plain English the sequence of resources that may be used, in order, to cover default losses (e.g. powers of assessment), and the actions the CCP may take to reduce default losses (e.g. tear-up).

21. Default management procedures: a document describing the key processes to be completed in the event of a clearing member default including at least the procedures for declaring an event of default, the procedures used to find replacement trades for the defaulter’s the cleared portfolio, liquidation of the defaulter’s collateral, and management of client positions.

22. All relevant information from Supplement 3 below: including full details of the proposed models and policies used in the calculation and calling of variation and initial margin, the CCP’s own contribution, the default fund, collateral haircuts, limits and eligibility, and liquidity risk measurement in the new clearing service.

23. Participation requirements for all clearing members and the procedures for onboarding, ongoing monitoring, and offboarding.

24. Account types: full information on all clearing member categories and account types (including house and client) that will be offered, including details on the segregation positions and collateral, and calculation of margin requirements and stress losses for each account and for the whole clearing member. Also including the participation requirements for each account type and the onboarding, ongoing monitoring, and offboarding procedures.

25. Liquidity risk: information on how liquidity risk measured and liquid resources held by the new service will be treated in the CCP’s overall liquidity risk management, including an updated liquidity plan incorporating liquidity risk from the new service.

Supplement 2: Adoption of new models or material model changes^{footnote [6]}

26. Section 138BA rule permission application form.

27. Current model: documentation describing the purpose and operation of the current model that is being changed, if this model currently exists, for example a policy and methodology document.

28. Proposed model: a comprehensive description of the purpose and design of the proposed new model, with enough information to allow an external reviewer to conduct a detailed validation. For complex models, a summary of the proposed changes and worked examples are encouraged.

29. An impact assessment, which should include the quantitative results of the materiality assessment above, with an additional break down showing what is driving this impact, for example how the proposed change affects margin requirements for different types of cleared portfolios and types of member, and the contributions of different components of the proposed new model.

30. Procyclicality testing to evaluate the potential impact on member resources of the new model, including evidence that all members are aware of these impacts (this is supplemented as below if changes are proposed to the initial margin model).

If a new risk model is proposed [in accordance with rules 3.2, 2.12, 3.13(4)(c)(v), and 3.16 of the Margin Part of the CCP rules]:

31. Relevant supporting evidence set out in Supporting evidence regarding the criteria for permission of the Margin chapter below.

If changes are proposed to the initial margin model:

32. Back testing: if the change relates specifically to the market risk model that is used to forecast future market prices:

1. A description of the back testing methodology, including:
2. What portfolios were used (which should include: all key single contracts, common trading strategies, and realistic cleared portfolios), with information on if/how the portfolios mature during the test period;
   1. which model(s) are being tested (which should include at least the proposed model and, where possible, the current model for comparison), specifying which add-ons have been included and which excluded;
   2. the time period(s) used for the test (at least one year, ideally at least ten years, and not older than one year); and
   3. a description of the performance criteria and how they are calculated (including at least simple realised coverage, with no adjustments, plus the output of a statistical test of the model’s adequacy), for individual portfolios and as aggregates of groupings (e.g. similar portfolio types and in total) for each model.
3. The numerical results described in (1)(4) for each portfolio, model, and time period, and also in aggregate.
4. The CCP’s own assessment of the testing performance, with reference to its target margin coverage.

33. Procyclicality testing:

1. A description of the procyclicality testing methodology, including the same as (1)(1)-(4) above, except with different performance criteria that are relevant to the CCP’s own procyclicality risk appetite.
2. The numerical results of the test for each portfolio, model, and time period, and also in aggregate.
3. The CCP’s own assessment of the testing performance, with reference to its procyclicality risk appetite.

34. Sensitivity analysis: where changes are proposed to important parameters or modelling choices, or new key parameters or modelling choices are introduced, the CCP should provide descriptive and/or quantitative evidence that the values of these parameters / modelling choices have been selected appropriately. The CCP should explain how it has decided which parameters and modelling choices are important and how it selected values for these.

If changes are proposed to the stress scenarios or scenario-generating model:

35. The same level of detail as set out in point 17 above.

If changes are proposed to the eligible collateral:

36. The following information for each new type of collateral accepted:

1. If it is a bond, the bond issuer, maturity range, currency of denomination, settlement venue, and total issuance;
2. The current planned levels for haircuts and all applicable limits (noting these may be different at launch).

Factors the Bank will consider

3.7 The Bank will make a judgement of whether the CCP will meet all recognition requirements after implementing the proposed additions in the application and of any financial stability impact of those additions, including the following factors:

1. a desk-based review of the application, the Bank’s existing supervisory judgement of the applicant, and any further engagement with the applicant during the process, to achieve a level of assurance that is proportional to a conservative estimate of the potential impact of the proposed additions in the application;
2. the relevant regulatory requirements, taking into account the systemic importance of the proposed clearing services in the application;
3. any potential positive or negative impacts of the proposed additions on the wider financial system;
4. the views of other regulatory authorities whose objectives may be affected by the application.

Application timelines

3.8 Upon receipt of the CCP’s application:

1. for non-material applications: the Bank expects to conduct a review of the documentation provided within 10 working days;^{footnote [7]}
2. for material applications: the Bank will confirm the materiality of the application (including that of any model changes proposed in connection with the application) within 10 working days, and conduct a review of the documentation provided within the statutory deadline of 80 working days.^{footnote [8]}

3.9 Should the Bank need to request further information to fulfil the documentation requirements set out above under Supporting evidence regarding the criteria for a variation of a recognition order, the assessment period will pause until the requested information has been received, and an extra 10 working days will be added to the deadline, in accordance with section 290ZA(1G) of FSMA. Any subsequent requests for information will not affect the deadline. This includes cases where a CCP has submitted documentation sufficient for a non-material variation of a recognition order, whereas the Bank deems the application to be material. In these cases, the 80-working-day assessment period for material applications will apply. Persistent failure to provide the requested information may result in rejection of the application.

Decision on the application

3.10 When the Bank has reached a decision on an application for a variation of a recognition order, it will communicate this in writing to the firm. Any decision on whether to give the CCP a material model change permission will also be communicated in writing as a separate decision.

3.11 Where the Bank imposes requirements upon approval of an arrangement, or rejects an application, it will state the reasons on which the decision is based.

3.12 The CCP must notify the Bank of any material changes that may affect its ability to comply with Bank rules.

4: The Bank’s approach to margin permissions [Margin Requirements rules 2.12, 3.2, 3.13(4)(c)(v), and 3.16]

1: Overview

1.1 This chapter sets out the Bank’s approach to applications for a specific subset of margin-related permissions in accordance with rules 2.12, 3.2, 3.13(4)(c)(v), and 3.16 of the Margin Requirements Part.

1.2 These permissions include when a CCP seeks to adopt models set requirements on regulatory initial margin as under rule 3.1. They also include when a CCP (a) wishes to apply portfolio margining across instruments with different default funds; (b) requests the disapplication of one of the conditions for using one trading day for the time horizon for the liquidation period to the extent that the amount of intraday margin to be paid to the CCP is immaterial; and (c) requests to use a different time horizon for the liquidation period, in the particular circumstances set out below.

1.3 In practice, applications for these permissions will almost always be made in connection with, or as part of, an application for a recognition order or variation of a recognition order or to make a material change to models and parameters. The Bank considers that changes to a CCP's model that require the modifications to rules 2.12, 3.13(4)(c)(v) and 3.16 of the Margin Requirements Part amount to a material change to a CCP’s model under rule 13.4 of the Review and Testing of Models and Parameters Part.

1.4 When giving permission under rule 3.2 for a CCP to adopt the models referred to under rule 3.1 not in connection with an application for a recognition order or a variation of recognition order, the Bank would exercise its powers under s138BA of FSMA to give, vary or revoke a permission, based on the criteria set out below.

1.5 This chapter should therefore be read in conjunction with Chapters II and III of this SoP.

2: Permissions related to margin

2.1 This section sets out the Bank’s approach to applications for permission to adopt models for the setting of requirements on regulatory initial margin in accordance with rules 3.1-3.2 of the Margin Requirements Part. Under rule 3.2, CCPs must not adopt the models referred to in rule 3.1 without first obtaining permission from the Bank.

2.2 In addition, this section sets out the Bank’s approach to applications for permission in accordance with rules 2.12, 3.13(4)(c)(v), and 3.16. This includes when the CCP:

1. wishes to apply portfolio margining to financial instruments that are not covered by the same default fund, in accordance with rule 2.12 of the Margin Requirements Part;
2. requests a disapplication of one of the conditions for using one trading day for the time horizons for the liquidation period for financial instruments other than OTC derivatives held in omnibus client accounts or in individual client accounts to the extent that the amount of intraday margin to be paid to the CCP is immaterial, in accordance with rule 3.13(4)(c)(v) of the Margin Requirements Part; or
3. requests to use a different time horizon for the liquidation period for OTC derivatives with the same risk characteristics as those executed on a UK regulated market or an equivalent overseas market, in accordance with rule 3.16 of the Margin Requirements Part.

2.3 When giving these permissions, the Bank would exercise its powers under s138BA of FSMA to give, vary or revoke a permission, based on the criteria below.

Application for permission

2.4 A CCP seeking permission to adopt the models referred to in rule 3.1 of the Margin Requirements Part or to modify rules 2.12, 3.13(4)(c)(v), or 3.16 should, as relevant, follow the process set out below. A separate application for permission will not be required when a CCP is:

1. making a material model change; or
2. applying for recognition or variation of a recognition order.

2.5 In the case outlined in paragraph 2.4(1) above, the CCP’s application for permission to make a material model change will also be an application for permission to modify rules 2.12, 3.13(4)(c)(v) and 3.16 of the Margin Requirements Part.

2.6 The Bank considers that there is a material change to the model when a CCP seeks to make the changes described in rules 2.12, 3.13(4)(c)(v), and 3.16 (see item 4 of the table in Annex 2). CCPs should submit applications for permission in line with the processes set out in the Chapter II of this SoP.

2.7 When a CCP is submitting an application in line with the process for a material model change, the CCP must follow the procedure set out in Chapter II, Section 3. This includes submitting the Model Change Notification Form (MCNF) in Annex 1 and an application containing the documentation set out in the sub-section on Supporting evidence regarding the criteria for permission of Chapter II, Section 3.

2.8 In the cases outlined in paragraph 2.4(2) above, the CCP’s application for recognition or variation of a recognition order, as applicable, will be deemed also to be an application for permission to adopt the models referred to in rule 3.1 or to modify rules 2.12, 3.13(4)(c)(v) or 3.16 of the Margin Requirements Part.

2.9 When a CCP is submitting an application in connection with an application for recognition or variation of recognition, the CCP should follow the relevant process set out in Chapter III.

2.10 In the cases when a recognised UK CCP seeks to adopt a new model under rule 3.2 outside of an application for recognition or variation of recognition, the CCP must submit a separate application to the Bank for permission. This application must be submitted in writing and consist of a completed application form as set out in the Bank’s SoP on its approach to rule permissions and waivers and supporting evidence.

Supporting evidence regarding the criteria for permission

Rule 3.2

2.11 When a CCP seeks permission under rule 3.2 to adopt the models referred to in rule 3.1 of the Margin Requirements Part, the supporting evidence must contain sufficient information to allow the Bank to assess whether the proposed models would meet the CCP’s regulatory requirements, including those set out under Chapter 3 of the Margin Requirements Part.

2.12 In particular, this should include how the CCP intends to meet the requirements relating to the design and adoption of the model, as well as requirements relating to confidence intervals, time horizons for the calculation of historical volatility and the liquidation period, procyclicality, the procyclicality assessment framework, margin model overrides, and the review of models using test results in the Margin Requirements Part.

2.13 Supporting evidence should include the models themselves, explanations of how these meet the rules as set out in the Margin Requirements Part, and the applicable documentation set out in the sub-section on Supporting evidence regarding the criteria for permission of Chapter II, Section 3.

Rules 2.12, 3.13(4)(c)(v), and 3.16

2.14 When a CCP seeks permission to modify rules 2.12, 3.13(4)(c)(v), or 3.16 of the Margin Requirements Part, the supporting evidence must contain sufficient information to allow the Bank to assess whether the proposed changes would meet the CCP’s other obligations under the Margin Requirements Part and the specific criteria set out below.

2.15 Where a CCP wants to apply portfolio margining to financial instruments that are not covered by the same default fund, the CCP must demonstrate to the Bank how potential losses would be allocated among different default funds and that it has set out the necessary provisions in its rules.

2.16 Where a CCP wants to disapply condition (v) at rule 3.13(4)(c) for using one trading day for the time horizons for the liquidation period, for financial instruments other than OTC derivatives held in omnibus client accounts or in individual client accounts, it must indicate the proposed pre-defined amount of intraday margin to be paid to the CCP that it regards as ‘not material’.

2.17 Where a CCP wants to use a different time horizon for the liquidation period for OTC derivatives with the same risk characteristics as those executed on a UK regulated market or an equivalent overseas market which is different to the time horizon in rule 3.13, the CCP must demonstrate that the proposed time horizon would be more appropriate in light of the specific features of the relevant OTC derivatives and indicate the time horizon that is proposed (which should be at least two business days, or one business day where the conditions set out in rule 3.13(4)(c) of the Margin Requirements Part have been met).

2.18 As set out above, modification of these rules is considered to require a material change to a CCP’s model. CCPs should therefore follow the processes and submit the documentation required for notifications of model changes and permissions to make material model changes, as set out in Chapter II, Sections 2 and 3 of this SoP.

2.19 When CCPs are applying for permission regarding rules 3.2, 2.12, 3.13(4)(c)(v), and 3.16 in connection with an application for recognition or variation of recognition, they should follow the processes and submit, as relevant, the supporting evidence set out in Chapter III, Sections 2 and 3 of this SoP.

Assessment of the application – general

2.20 Where the Bank receives an application for approval of these models or modifications of one of the rules set out above, and it decides to give permission, the Bank will, depending on the application received, permit the arrangement, taking into account whether the CCP has met its obligations under the Margin Requirements Part, particularly the Chapter 3 requirements.

2.21 Where the Bank gives permission for use of these models or for modification of one of the rules set out above on appropriate grounds, the permission will specify whether the permission given is that sought by the CCP or whether conditions have been applied, if relevant.

Factors the Bank will consider

2.22 The Bank will base its permission or variation of permission on an assessment of the information provided. This includes whether that information demonstrates compliance with the requirements set out under Chapter 3 of the Margin Requirements Part, including rule 3.1, which sets out that the models and parameters^{footnote [9]} for setting regulatory initial margin requirements must capture the risk characteristics of the products cleared and take into account the interval between collections of margin, market liquidity, and the possibility of changes over the duration of the transaction.

2.23 In addition, the Bank will make a judgment on whether the CCP will continue to meet all of its regulatory requirements after implementing the rule modifications proposed in the application and on any financial stability impact(s) of the proposed modification.

2.24 The Bank will, as relevant, also consider the factors set out under the Factors the Bank will consider sub-sections sections of Chapters II and III of this SoP.

2.25 For permissions requested for modifications to rules 2.12, 3.13(4)(c)(v), and 3.16 of the Margin Requirements Part, respectively, the Bank will consider whether the CCP demonstrates that it meets the specific criteria set out for each permission below. By rule, criteria include:

1. Rule 2.12: That a CCP has demonstrated how potential losses would be allocated among different default funds and that it has set out the necessary provisions in its rules.
2. Rule 3.13(4)(c)(v): That a CCP has pre-defined a proposed amount of intraday margin to be paid to the CCP as ‘non-material’ and whether the Bank agrees with that amount. The Bank will only give the permission subject to the condition that the amount of intraday margin to be paid to the CCP does not exceed the pre-defined amount set by the CCP and that trades previously allocated to clients are margined separately from trades that are not allocated during the day.
3. Rule 3.16: That a CCP can demonstrate that a time horizon other than that specified in rule 3.13 would be more appropriate in light of the specific features of the relevant OTC derivatives and that the proposed time horizon is at least two business days, or one business day where the conditions laid down in rule 3.13(4)(c) of the Margin Requirements Part are met.

Application timelines

2.26 The Bank will confirm receipt of the application of the CCP. An application will be considered complete by the Bank if the application covers all the matters set out in the sections ‘Initial application for permission’ and ‘Supporting evidence regarding the criteria for permission’.

2.27 The Bank will assess the completeness of the information provided and conduct a review of the proposed model or parameter as referred to in rule 3.1 or the proposed modification of rules 2.12, 3.13(4)(c)(v), or 3.16.

2.28 Subject to paragraph 2.29, when a recognised UK CCP seeks to adopt a new model as referred to in rule 3.1, the Bank will in general expect to determine the outcome of an application within 60 working days. Should the Bank need to request further information within this period, the Bank will specify the additional information requested and the reasons for the request. The assessment period will pause until the requested information has been received, and an extra 10 working days will be added to the deadline. Any subsequent requests for information will not affect the deadline. Persistent failure to provide the requested information may result in rejection of the application.

2.29 Applications to adopt a model under rules 3.2 or to modify rules 2.12, 3.13(4)(c)(v), and 3.16 will follow the timelines for an application for recognition or variation of recognition, when a CCP is applying for permission as part of such an application. Applications to modify rules 2.12, 3.13(4)(c)(v), or 3.16 will otherwise follow the timelines for an application to make a material model change.

2.30 Further details on these timelines are set out in the chapters on ‘The Bank of England’s approach to recognition orders and variations of recognition orders (Sections 288, 290 and 290ZA FSMA 2000)’ and ‘The Bank’s approach to notifications of model changes and permissions to make material model changes [Review and Testing of Models and Parameters rules 13.1 and 13.4]’.

2.31 The Bank will publish information on how long it takes to make decisions on applications to adopt a model as under rule 3.2 or to modify rules 2.12, 3.13(4)(c)(v), or 3.16.

Varying or revoking a permission

2.32 Where the model or the rule modification under the permission no longer fulfils the conditions under which the permission for the arrangement was given, CCPs should notify the Bank, and the Bank will decide on either of the following actions:

1. to introduce new conditions or amend any conditions that the permission is subject to; or
2. to revoke its permission for the model or parameter.

2.33 The Bank will notify the CCP immediately, stating the reasons, where it has decided in accordance with the previous paragraph. Where the CCP is aware of a change in circumstance whereby the model or rule modification, in accordance with the above, may no longer fulfil the conditions under which the permission for the arrangement was given, it should inform the Bank of this change in circumstance.

Annexes

• Annex 1: Model Change Notification Form

  1.	Name of model change notification
  2.	Short description of the planned change or new product, including elements of the model(s) and the service lines which will be affected and the rationale for the change.
  3.	If the change involves a new product/contract, is this within the CCP’s existing recognition order [yes/no]? NB: If answering ‘no’, an application for a variation of a recognition order is required; please refer to Chapter III of the Statement of Policy on the The Bank of England’s approach to supervisory processes (model changes, recognition orders and variations of recognition orders) and margin permissions.
  4.	Current implementation plan, including target launch date range and key dependencies.
  5.	Impact (if any) on initial margin requirement, default fund, post-haircut collateral value and/or stressed liquidity requirement, in absolute and relative terms, on three or more representative dates in the six months prior to submission.
  6.	Reason for the planned change, including details of any similar prior changes.
  7.	Is the change material (requiring Bank review) or non-material (actionable following confirmation of non-materiality from the Bank)? For materiality threshold criteria, please refer to Annex 2 of the Statement of Policy on The Bank of England’s approach to supervisory processes (model changes, recognition orders and variations of recognition orders) and margin permissions.

• Annex 2: Materiality threshold criteria

  The Bank will have regard to the matters below in determining whether the change to a proposed model or parameter or application to vary a recognition order are material.

  The matters to which the Bank will have regard are expressed in terms of three categories of criteria:

  1. Qualitative criteria for changes which potentially alter a CCP’s risk profile (e.g. clearing a new asset class, accepting a new asset class as collateral, or a new type of member or client account); or for changes affecting the CCP’s core risk appetite (e.g. change of margin period of risk or target coverage level).
  2. Criteria applying to changes to important model components (e.g. to lookback period or add-ons), triggered by a greater than 5% impact on a CCP’s service-level resources.
  3. Criteria applying to changes to key resources (total initial margin, default fund, stressed liquidity requirement), triggered by a greater than 15% impact on a CCP’s service-level resources.

  Calculations of percentage impact should be based on the maximum change from measurements on at least three representative dates over the six months prior to the date of submission.

  A proposed model change will be considered material if it satisfies any one of the criteria listed in Table A.

  Table A: Materiality threshold criteria

  Category	Description
  1. Qualitative	1. A new type of member or client account is created by the change.
  	2. A change in the structure of one or more default waterfalls, for example by combining or splitting default funds.
  	3. The clearing of a new contract or acceptance of a new type of collateral with novel risk factors, e.g.: clearing a new asset class, e.g. clearing commodity trades where previously only equities are cleared. clearing a new type of derivative, e.g. clearing options where previously only futures are cleared. accepting a new form of collateral, e.g. accepting corporate debt where previously only sovereign debt is accepted.
  	4. A change to one of the following elements of core initial margin model: the confidence level, margin period of risk (MPOR) or choice of anti-procyclicality (APC) tool; the amount under which intraday margin to be paid to the CCP can be considered not material for the purpose of determining the time horizon for the liquidation period for financial instruments other than OTC derivatives held in omnibus client accounts or in individual client accounts [rule 3.16 of the Margin Requirements Part]; the time horizon for the liquidation period for OTC derivatives with the same risk characteristics as those executed on regulated markets [rule 3.13(4)(c)(v) of the Margin Requirements Part]; the financial instruments to which the CCP wants to apply portfolio margining are covered by different default funds [rule 2.12 of the Margin Requirements Part].
  2. >5% impact	5. A change to the lookback period, or way in which historical returns are calculated (absolute, log) or scaled (unscaled, exponentially weighted moving average (EWMA) AND which leads to change of over 5% in total IM requirement in the relevant default waterfall.
  	A change to the stress scenarios used for default find sizing, involving the removal or amendment of a historical stress scenario, or for any model used to generate non-historical stress scenarios, any changes to the basic structure or key assumptions made by the model, AND which leads to a change of over 5% in total default fund size in the relevant default waterfall.
  	7. A change in any initial margin add-on models involving, for any add-on model, the introduction or removal of that add-on, or any changes to the structure and/or key assumptions made by the model, AND which leads to a change of over 5% in total initial margin requirement in the relevant default waterfall.
  	8. A change to the basic structure or key assumptions of how stressed liquidity requirements are estimated AND which leads to a change of over 5% in stressed liquidity requirement.
  	9. A change to the basic structure or key assumptions (e.g. confidence level or liquidation period used) of the model to calculate collateral haircuts AND which leads to a change post-haircut value of collateral posted to meet pre-funded requirements (initial margin, default fund) of over 5%.
  3. >15% impact	10. The proposal causes an increase or decrease of over 15% in of one the following risk metrics: the total initial margin requirement in the relevant default waterfall; the total default fund size in the relevant default waterfall; the stressed liquidity requirement that is used to calculate the liquidity coverage ratio.