Fed paper proposes initial margin weights for crypto-linked derivatives

A recent working paper released by Federal Reserve economists proposes the establishment of specific initial margin (IM) weights for derivatives linked to crypto-assets, such as Bitcoin and Ethereum. The paper highlights that the inherent volatility and unique risk profiles of digital assets necessitate a more tailored approach to collateral requirements compared to traditional financial instruments. By analyzing historical price fluctuations and tail risks, the researchers suggest that standard margin frameworks should be adjusted to ensure that central counterparties and clearinghouses remain resilient against potential market shocks. This proposal aims to safeguard financial stability by ensuring that market participants maintain sufficient buffers to cover potential losses associated with the high-variance nature of the crypto market.

Source: Fed paper proposes initial margin weights for crypto-linked derivatives