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
Response to FASB on KPIs for Business Entities
On April 30, ISDA submitted a response to the Financial Accounting Standards Board’s (FASB) proposal on financial key performance indicators (KPIs) for business entities. In the response, ISDA addressed the implications of KPI standardization, its potential impact on financial reporting...
Updated OTC Derivatives Compliance Calendar
ISDA has updated its global calendar of compliance deadlines and regulatory dates for the over-the-counter (OTC) derivatives space.
Response on Commodity Derivatives Markets
On April 22, ISDA and FIA submitted a joint response to the European Commission’s (EC) consultation on the functioning of commodity derivatives markets and certain aspects relating to spot energy markets. In addition to questions on position management, reporting and...
Episode 50: The Value of Derivatives
A new report from ISDA shows that companies all over the world use derivatives to alleviate uncertainty, transfer risk and enhance profitability. ISDA discusses the findings with Boston Consulting Group’s Roy Choudhury. Please view this page via Chrome to access...