Procyclicality in CCP margining: the case against a universal definition

First, this article argues that procyclicality is an inherently context-dependent phenomenon, shaped by the interaction of product characteristics cleared by central counterparties (CCPs), and the design choices embedded in CCPs’ initial margin models. Given the substantial heterogeneity among CCPs with respect to cleared products, risk horizons, liquidity profiles, and margin methodologies, any attempt to impose a single, set-in-stone definition in regulation risks either over-inclusiveness or regulatory irrelevance. Second, even where definitional clarity is pursued, it remains a regulatory utopia: no definition can fully capture the dynamic, model-driven, and time-varying nature of procyclicality without sacrificing either precision or flexibility. Third, this article claims that the regulatory focus should shift away from the pursuit of a universally applicable definition towards a principle-based, outcomes-oriented high-level definition, allowing anti-procyclicality tools to be calibrated and applied in light of the specific risks, products, and margining practices of each CCP.