Margin Requirements for Non-Centrally-Cleared Derivatives
Summary
The Asset Management Group of SIFMA (SIFMA AMG) provides comments to the Basel Commission on Banking Supervision (BCBS) and the Board of the International Organization of Securities Commissions (IOSCO) in regards to their Second Consultative Document for the Margin Requirements for Non-Centrally-Cleared Derivatives. SIFMA AMG offers broad support for the BCBS/IOSCO recommendations and proposed timeline. SIFMA AMG also reiterated the points made in prior comments to BCBS/IOSCO on this subject, including the categorization of entities for purposes of defining initial margin thresholds, bilateral margining and the use of models. The letter’s main points include:
- Foreign exchange swaps and foreign exchange forwards should not be subject to mandatory margin requirements because they pose less risk than other derivatives and, because these risks are already appropriately mitigated.
- BCBS/IOSCO should clarify the concept of a “consolidated group” and the applicability of the €8 billion phase-in level and the €50 million uncollateralized threshold for initial margin. We believe that the aggregation of uncleared derivatives positions should depend on the source of recourse by the counterparty and that, in particular, no aggregation as a “consolidated group” should be required across portfolios managed by the same asset manager.
- Derivatives counterparties that post initial margin should be able to elect to have that initial margin segregated at a third-party custodian, with appropriate protections. Initial margin posted for uncleared derivatives but not held in third-party custody should be treated as customer property of an insolvent counterparty, protected against the claims of general creditors.
- Limited re-hypothecation should be allowed to finance or hedge customer positions as long as rehypothecated customer assets are adequately protected.
Excerpt
March 15, 2013
Basel Committee on Banking Supervision
Bank for International Settlements
Centralbahnplatz 2
CH-4002 Basel
Switzerland
International Organization of Securities Commissions
C/ Oquendo 12
28006 Madrid
Spain
Re: Comment Letter on the Second Consultative Document for the Margin Requirements for Non-Centrally-Cleared Derivatives
To Whom It May Concern:
The Asset Management Group (the “AMG”)1 of the Securities Industry and Financial Markets Association (“SIFMA”) appreciates the opportunity to provide the Basel Commission on Banking Supervision (the “BCBS”) and the Board of the International Organization of Securities Commissions (“IOSCO”) (together with BCBS, “BCBS/IOSCO”) with our views on the recently released second consultative document on margin requirements for non-centrally cleared derivatives (the “Second Consultative Document”).2
1 The AMG’s members represent U.S. asset management firms whose combined assets under management exceed $20 trillion. The clients of AMG member firms include, among others, registered investment companies, endowments, state and local government pension funds, private sector Employee Retirement Income Security Act of 1974 pension funds and private funds such as hedge funds and private equity funds. In their role as asset managers, AMG member firms, on behalf of their clients, engage in transactions for hedging and risk management purposes that will be classified as “security-based swaps” and “swaps” under Title VII of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”).
2 Second Consultative Document Issued by the Basel Committee on Banking Supervision and the Board of the International Organization of Securities Commissions on Margin Requirements for Non Centrally-Cleared Derivatives, available at http://www.bis.org/publ/bcbs242.pdf.