End users and policy makers have raised concerns on how segregated initial margin for centrally cleared derivatives is treated under the Basel III leverage ratio. End-users at the Commodity Markets Council and the Managed Funds Association, have written to the Basel Committee on Banking Supervision, regarding the adverse effects of the Basel III supplementary leverage ratio on end user and buy-side market participants.
“The Leverage Ratio’s failure to recognize the purpose of segregated initial margin results in a threat to the use of cleared derivatives by end-users. Clearing Members incurring large Leverage Ratio exposures for the low economic exposure activity of clearing will raise prices on end-users significantly.”
A letter was sent to Chair Yellen at the Fed from the House Committee on Agriculture (another letter from members of the House Financial Services Committee is expected to be sent shortly).
“We remain concerned that if the leverage ratio remains unchanged when the 2018 compliance period begins, a central pillar of Title VII of Dodd Frank, the mandate to centrally clear derivative trades, will be thwarted.”
Concerns over the treatment of segregated initial margin were also a focus of the CFTC MRAC meeting on Monday of this week, and have been a repeated theme at the FIA Expo in Chicago, drawing comments from CFTC Chairman Massad and MEP Kay Swinburne. It was also a topic at the House Financial Services Committee hearing today with Chair Yellen.