Fed paper proposes initial margin weights for crypto-linked derivatives

Traditional risk-weightings and models cannot account for crypto's high volatility or market behavior, according to a Federal Reserve paper.

New analysis published Wednesday by the Federal Reserve proposes that crypto be categorized as a distinct asset class for initial margin requirements used in “uncleared” derivatives markets, including over-the-counter trades and other transactions that do not pass through a centralized clearinghouse.

The working paper said that is because crypto is more volatile than traditional asset classes and does not fit into the risk categories outlined in the Standardized Initial Margin Model (SIMM) that classifies asset classes.

These include interest rates, equities, foreign exchange and commodities, according to authors Anna Amirdjanova, David Lynch and Anni Zheng.

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