Earlier this week, the Commodity Futures Trading Commission (CFTC) and the Securities and Exchange Commission (SEC) held a roundtable on regulatory harmonization – an initiative we wholeheartedly support. The US regulatory framework has evolved over time to facilitate financial markets that are both vibrant and resilient, but we shouldn’t shy away from acknowledging where and how the US regulatory process could be improved.

Both the CFTC and SEC have adapted their respective rulesets over time to reflect critical changes in markets, from the introduction of mandatory central clearing for derivatives to the advent of high-frequency trading. But a cautious approach has slowed market and product evolution. At a time when markets are evolving at a ferocious pace because of technological change, we need to make sure the regulatory process is streamlined and coordinated to avoid gumming up the wheels of finance that are so critical to economic growth. As the roundtable discussion showed, market participants are both capable and willing to work with regulators to support the appropriate evolution of the market by developing trading, risk management and operational solutions required for the future.

It’s important to remember that regulators and market participants have a successful history of cooperation on reforms that have delivered safer and more efficient markets – and ISDA has played an important part in developing legal, operational and risk management solutions to support that on a global scale. This includes delivery of the ISDA resolution stay protocols as part of global regulatory bank resolution efforts, implementation of the margining rules for non-cleared derivatives and launch of the ISDA Standard Initial Margin Model, and development of ISDA fallbacks to aid the transition from LIBOR.

There are parts of the current US regulatory framework where similar alignment and coordination are sorely needed. The CFTC and SEC rulebooks can be complex, overlap in certain key areas and are overly reliant on no-action relief. They also contain inconsistencies that mean the regulatory treatment of products and activities with similar risk profiles can differ, depending on whether they fall under the jurisdiction of the CFTC or the SEC.

We would highlight three key areas where greater coordination between the CFTC and SEC is critical and market participants can help to deliver solutions that would increase compliance, cut costs and create a robust collateral infrastructure.

The first is regulatory reporting. It’s been more than four years since Archegos Capital Management went bust, leaving its counterparty banks with more than $10 billion in losses. US regulators were largely unaware of the exposures Archegos had been accumulating. While the CFTC introduced its reporting rules in 2012, the SEC regime only came into force a decade later, meaning Archegos did not have an obligation to report its security-based swaps ahead of its collapse.

Both regimes are now in place, which should help avoid gaps in the data going forward. This was helped by cooperation between the two agencies, with the SEC allowing firms to use CFTC reporting processes. But this remains a temporary solution. We urge the SEC to work with the CFTC and the industry to codify this relief into the SEC’s permanent ruleset – a development that would eliminate significant unnecessary complexity and inefficiency for market participants. ISDA plans to add the SEC rules to its Digital Regulatory Reporting initiative, which already supports compliance in eight jurisdictions, enabling firms to implement changes to regulatory reporting requirements cost-effectively and accurately.

The agencies should also jointly invest in data curation and analytics capabilities. As a 2023 ISDA paper points out, a significant amount of data is available to regulators, but ensuring key information does not remain hidden in plain sight is challenging.

The second issue is Treasury clearing. Ahead of the clearing mandate coming into force from end-2026, clients must be able to realize the benefits of portfolio margining across cleared US Treasury securities and futures. The Fixed Income Clearing Corporation and CME Group are set to propose a client portfolio margining solution, and it’s critical the CFTC and SEC act to quickly approve it once they do. This is a no-brainer and essential to make the economics of client clearing work.

This isn’t just a CFTC and SEC issue – US prudential regulators also need to adapt their rules to recognize the risk-reducing benefits of netting across products, including cleared repos and futures, under the standardized approach to counterparty credit risk.

The third issue is market liquidity and collateral infrastructure. According to the latest ISDA margin survey, initial margin and variation margin collected by leading derivatives market participants for their non-cleared derivatives exposures increased by 6.4% to $1.5 trillion at the end of 2024. While margin requirements have helped to provide protection against counterparty credit risk, we must recognize that the financial system has become more prone to liquidity crunches during periods of stress.

At a time when some markets are moving to 24/7 trading, we need 24/7 risk management. Tokenization could alleviate some of the liquidity and workflow challenges by expanding the types of usable collateral to a wider range of assets, including money market funds and other tokenized cash and securities. The industry is primed to transform the collateral ecosystem to make it more automated and efficient by leveraging blockchain and tokenized solutions. It’s time the CFTC, SEC and market participants work together to upgrade this critical infrastructure underpinning our financial system.

We hope this week’s CFTC-SEC roundtable is just the start of greater coordination between the agencies and market participants to swiftly address the old regulations that aren’t fit for purpose and address the evolution of products, participants and infrastructures. Working together and tackling these issues will reduce unnecessary regulatory burdens, open a path to greater innovation and improve the competition and efficiency of US financial markets.