In its most universal form, a system of numerical haircut floors for securities financing transactions would require any entity that wants to borrow against a security to post a minimum amount of excess margin to its lender that would vary depending on the asset class of the collateral.
Like minimum margin requirements for derivatives, numerical haircut floors for securities financing transactions would serve as a mechanism for limiting the build-up of leverage at the transaction level, and could mitigate the risk of pro-cyclical margin calls. In August, the FSB issued a consultative document that outlined a framework of minimum margin requirements for securities financing transactions.