ISDA welcomes the opportunity to respond to the Financial Stability Board’s (FSB) Derivatives Assessment Team’s (DAT) consultative report on incentives to centrally clear over-the-counter (OTC) derivatives, and supports the work of the FSB in evaluating of the effects of Group-of-20 financial regulatory reforms. We appreciate that the FSB is evaluating not only the regulatory reforms individually, but also – importantly – how they intersect. We also welcome an analytical framework that supports post-crisis regulatory objectives while rationalizing the regulatory framework where appropriate.
ISDA members support clearing, which is an effective means to reduce counterparty risk and increase the resilience of the financial system. The clearing market infrastructure operates well, and the global approach to clearing has achieved significant reductions across many facets of systemic risk. Clearing brings a number of inherent benefits, including: multilateral netting; reduction in credit risk; operational efficiency; and a robust default management process. Many firms clear voluntarily due to these inherent benefits.
Further incentives to clear are created through the regulatory framework. Regulations such as the non-cleared derivatives margin rules and certain capital requirements apply across a broad range of products and counterparties, regardless of whether such products are suitable for clearing, or whether such counterparties pose systemic risk. As a result, these regulatory incentives may not always be appropriate. We appreciate that the DAT report seeks to identify where this may be the case.
Our key recommendations fall into the following broad subject areas:
- Recalibration of the capital framework;
- Flexibility in the clearing mandate;
- Need to increase clearing capacity; and
- Fostering harmonization where sensible.
ISDA also advocates for making non-cleared margin requirements more risk appropriate. These proposals will be the subject of a separate paper.
Click on the attached PDF to read the full paper.
Documents (1) for ISDA Response to FSB DAT Report on Clearing Incentives
Latest
Paper on Liquidity Assessment for Single-name CDS
On September 5, ISDA submitted a paper to the European Securities and Markets Authority (ESMA) and the European Commission in support of its earlier response to ESMA’s Markets in Financial Instruments Regulation (MIFIR) review consultation package 4 (CP4) on transparency...
Response to EC on Delegated Regulation
On September 4, ISDA responded to the European Commission’s (EC) consultation on amendments to delegated regulation (EU) 2017.567. The key area of interest for ISDA was the proposed insertion of a new article 16a that establishes what constitutes a post-trade...
Raising Clients’ Awareness on Portability
Clients accessing a central counterparty (CCP) via a client clearing service provider (CCSP) for over-the-counter (OTC) and exchange-traded derivatives should consider what may happen to their positions and collateral in a scenario in which the CCSP defaults. While regulatory regimes...
Response to FCA on Ancillary Activities Test
On August 28, ISDA and FIA submitted a joint response to the Financial Conduct Authority’s (FCA) consultation paper CP25/19 on the ancillary activities test to determine if commercial users or producers of commodities that trade in commodity derivatives, emission allowances...