US derivatives head looks to right swaps trading, leverage ratio wrongs

The head of the CFTC intends to ease rules on swaps trading and bank capital rules.

The head of the US derivatives watchdog is hoping to revise rules around swaps trading and capital models, a move he believes would free up trading and clearing at the big banks. 

Speaking at the ISDA Annual General Meeting Christopher Giancarlo, acting chairman of the Commodity Futures Trading Commission (CFTC) has called for changes to the supplementary leverage ratio (SLR) rules, in order to grant relief from banks providing swaps clearing services.

These include the exclusion of customer cash collateral held at clearing houses from the bank’s capital calculation, and to take into account client collateral when computing its potential future exposure to counterparty credit risk.

Giancarlo said the changes will reduce capital costs for clearing banks by as much as 70%, and if these savings are passed on to their clients, could translate into a three-fold increase in trading activity.

“This dramatic reduction in costs on a service imperative to managing systemic risk in swaps is entirely worth the trade-off of a miniscule reduction in balance sheet protection,” said Giancarlo.

The acting chairman also took aim at the CFTC’s “flawed swaps trading rules” imposed by the agency in 2013, which he said had “driven global market participants away from transacting with entities subject to CFTC swaps regulation…Our regulatory framework must help to attract, rather than repel, global capital to US trading markets.”

His comments echoed that of his European counterpart Steven Maijoor, chair of the European Securities and Markets Authority (ESMA), who said on Tuesday it is working to recalibrate OTC derivatives reforms.