On March 31, 2021, ISDA and the Institute of International Finance (IIF) submitted a joint response to the Basel Committee on Banking Supervision (BCBS) consultation on technical amendments to minimum haircuts for securities financing transactions (SFTs).
The BCBS published for consultation two technical amendments to the section of the framework that deals with the calculation of minimum haircut floors for SFTs. The technical amendments clarify an interpretation issue relating to collateral upgrade transactions and fix a misstatement of the formula used to calculate haircut floors for netting sets of SFTs.
In the response, the associations took the opportunity to respond to broad aspects of the framework. The response is structured in two components. First, it focuses on the scope of application of the minimum haircut requirement and, in particular, the potential negative impact for securities borrowing transactions. The second component focuses on the quantitative determination of minimum haircut requirements and issues relating to the penalty function embedded in the proposed framework that creates cliff-effect outcomes and introduces instability in the calculation.