The margin exchanged to reflect those losses and gains (VM) across UK CCPs in Q1 2022 were larger than those observed during the 2020 Covid crisis. [6] UK CCPs’ aggregate initial margin requirements also increased, but by relatively less than we saw during Q1 2020. [7] This was partially because the shocks to asset prices were less broadbased, and partially because commodity markets had gone through a period of volatility just a few months earlier, so initial margin was already elevated. Page 4  Some early lessons Just because central clearing has been a success, does not mean that CCPs and CCP regulators do not need to keep learning. CCPs have been central to making the financial system safer over the past decade. But we have also seen new significant strains that need to be addressed. Policy makers and market participants have deliberately and sensibly put CCPs in the centre of the financial system. To continue to earn that trusted role we need to keep learning – we cannot be defensive. I see three areas for further work  (1) Tackle the side effects without sacrificing the cure By design, post-crisis reforms mean that in events of market turmoil losses are crystalized promptly and risk is repriced. But as we have seen in 2020 and again in 2022 this can mean very sharp strains on liquidity in parts of the system. The answer here is obviously not to return to pre-2008. We need to avoid having such short memories that we return to a pre-Lehman system.
Nature’s education website declares: “Ignoring Population Structure Can Lead to Erroneous Predictions of Future Population Size.”[11] The lesson is no different in markets – underlying market structures matter. CCPs – who are in the risk management business – can help with this by understanding and managing the markets in which they operate. This includes client positions and the role of physical delivery. The recent events in the nickel market are a good example. The historic price moves I just spoke about can be the result of things completely outside of the financial system – weather, plagues, and invasions. But they can also be exacerbated or even driven by market structure. In the case of nickel, much of the price move was related to the build-up of a very large position in the form of a tangled and opaque web of derivative exposures involving a single client. We have seen these before: Archegos, Long Term Capital Management. This time, while the bulk of the contracts were bilateral, many were centrally cleared. There will be important lessons learned from the events in nickel – both with respect to the specific incident and more generally,[12] and I am sure I will have more to report following the conclusions of the independent review we have commissioned. Page 6  When it comes to this early lesson, CCPs could form part of the solution.