FIA lobbies against Basel treatment of segregated margin

The Futures Industry Association (FIA) has written to the Basel Committee on Banking Supervision asking them to reconsider the inclusion of segregated margin in its leverage ratio calculations.

The Futures Industry Association (FIA) has written to the Basel Committee on Banking Supervision asking them to reconsider the inclusion of segregated margin in its leverage ratio calculations.

The trade association explains that the exposure-reducing effect of segregated margin should be exempt from the rules, as the amount of capital required for central clearing will substantially increase if the regulation is left in its current form. 

“Such a significant increase in required capital will also significantly increase costs for end users, including pension funds and businesses across a wide variety of industries that rely on derivatives for risk management purposes,” said Walt Lukken, president and CEO of FIA.

“Further, banks may be less likely to take on new clients for derivatives clearing. As a result, market participants may be less likely to use cleared derivatives for hedging and other risk management purposes.”

The treatment of clearing under the leverage ratio has been one of the biggest headaches for CCPs, with concerns over the unintended consequences of the regulation.

FIA was joined by two other global trade associations - the World Federation of Exchanges and CCP12 - in compiling the letter. Four global clearing houses - CME Group, LCH Clearnet Group, and Eurex Group – have also backed the request.

The letter identifies three potential avenues for revising the leverage ratio: an interpretive FAQ, amending the text of the leverage ratio standard, and adopting a modified calculation methodology that recognises the benefit of collateral.

“If the leverage ratio calculation stands as-is, we will likely see fewer banks offering central clearing services and fewer opportunities for end-users to hedge risks,” added Lukken. “That result is not only undesirable, but it is also completely contrary to the G20’s intentions to promote central clearing.”

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