Variation Margin Gains Hedging

Variation Margin Gains Haircutting

(VMGH)

A concept considered in resolution of a central counterparty (CCP) whereby a CCP failing or at risk of failure can conserve or accumulate cash by cancelling or reducing the variation margin payments that it would otherwise have been required to make to clearing members. In such proposals the idea is usually that it would also continue to collect variation margin payments due from clearing members.

A Reserve Bank of Australia Bulletin of December Quarter 2013 article "Recovery and Resolution of Central Counterparties" by Matt Gibson found that CCPs such as "The Japan Securities Clearing Corporation (JSCC), the UK-based LCH.Clearnet Ltd (LCH.C Ltd), CME Clearing Europe, and the French-based LCH.Clearnet SA (LCH.C SA) each have rules allowing for VMGH [and the complete tearing up of open contracts] where prefunded financial resources have been exhausted by the default of a participant." https://www.rba.gov.au/publications/bulletin/2013/dec/pdf/bu-1213-5.pdf