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THE WORLD FEDERATION OF EXCHANGES RESPONDS TO US AGENCIES ON PROPOSED STANDARDISED APPROACH FOR CALCULATING THE EXPOSURE AMOUNT OF DERIVATIVE CONTRACT

Hamilton, Bermuda – March 18, 2019:  THE WORLD FEDERATION OF EXCHANGES RESPONDS TO US AGENCIES ON PROPOSED STANDARDISED APPROACH FOR CALCULATING THE EXPOSURE AMOUNT OF DERIVATIVE CONTRACTS;

 

London, Monday 18 March 2019 – The World Federation of Exchanges (“WFE”), the global industry group for exchanges and CCPs, has responded to three US federal banking agencies on a proposed rule to update their standards for how firms measure counterparty credit risk posed by derivative contracts. 

 

The proposed rule, jointly issued by the Federal Reserve Board, Federal Deposit Insurance Corporation (FDIC), and the Office of the Comptroller of the Currency (OCC), would update the way US authorities measure derivatives counterparty risk along the lines of the Basel Committee’s SA-CCR approach.

 

The WFE has responded to the consultation as follows:

 

  • The WFE supports a policy framework that allows for accessible, competitive and vibrant derivatives markets - and one that also ensures the soundness of banks (including the prevention of excessive leverage);
  • The WFE has long advocated for the recognition of client margin offsets, and encourages international proposals to address the leverage ratio treatment of a segregated client margin; and
  • The WFE supports the US authorities’ efforts towards the implementation of the standardised approach for measuring counterparty credit risk (SA-CCR); this should be done in a manner that incorporates margin offsets.

 

Addressing the leverage ratio treatment of segregated client initial margin is a long-standing policy priority for the WFE.

 

  • In August 2015, the WFE - alongside counterpart stakeholder organisations - co-signed a letter a letter to the Financial Times on the ‘Leverage ratio threat to the cleared derivatives ecosystem’.
  • In November 2016, the WFE co-signed a letter to the Basel Committee on Banking Supervision (BCBS) and Financial Stability Board (FSB) concerning the leverage ratio’s unintended consequence of increased fragility in the financial system.
  • In September 2018, the WFE responded to an international standards setters’ consultation concerning incentives to clear with a call for concerted action to resolve the persistent issues with the way the leverage ratio treats segregated client initial margin.
  • In January 2019, the WFE published a response to the BCBS consultation on the leverage ratio treatment of client cleared derivatives, reiterating its position on the issue of the treatment of segregated client margin.

 

Nandini Sukumar, Chief Executive Officer, WFE said: “We support the global implementation of SA-CCR, but this needs to be done in a way that looks at the problems linked to the leverage ratio treatment of segregated client initial margin. The risks associated with clearing member concentration must be addressed urgently.”

 

You can read the full response to the US authorities here.

 

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About the World Federation of Exchanges (WFE):

Established in 1961, the WFE is the global industry association for exchanges and clearing houses. Headquartered in London, it represents over 200 market infrastructure providers, including standalone CCPs that are not part of exchange groups. Of our members, 37% are in Asia-Pacific, 43% in EMEA and 20% in the Americas. WFE exchanges are home to nearly 48,000 listed companies, and the market capitalisation of these entities is over $70.2 trillion; around $95 trillion (EOB) in trading annually passes through the infrastructures WFE members safeguard (at end 2018).

 

The WFE is the definitive source for exchange-traded statistics and publishes over 350 market data indicators.  Its free statistics database stretches back more than 40 years and provides information and insight into developments on global exchanges. The WFE works with standard-setters, policy makers, regulators and government organisations around the world to support and promote the development of fair, transparent, stable and efficient markets. The WFE shares regulatory authorities’ goals of ensuring the safety and soundness of the global financial system.  

 

With extensive experience of developing and enforcing high standards of conduct, the WFE and its members support an orderly, secure, fair and transparent environment for investors; for companies that raise capital; and for all who deal with financial risk. We seek outcomes that maximise the common good, consumer confidence and economic growth. And we engage with policy makers and regulators in an open, collaborative way, reflecting the central, public role that exchanges and CCPs play in a globally integrated financial system.

 

For more information, please contact:

 

Anna Watson

Head of Communications, The World Federation of Exchanges 

Email:     awatson@world-exchanges.org

Phone:   +44 20 7151 4137 / 7850 287 685

Twitter:   @TheWFE

 

 

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For more information on the Bermuda Stock Exchange (BSX), contact Nancy Vieira at 1-441-292-7212 or info@bsx.com. Information is also available at bsx.com and on Bloomberg at BSX the BSX was founded in 1971 and is the world’s leading fully electronic offshore securities market. The BSX list equities, mutual funds and bonds, depository receipts and derivative warrant securities. The BSX is a full member of the World Federation of Exchanges (WFE) and an affiliate member of IOSCO. In addition, the BSX is recognized by the U.S. Securities & Exchange Commission (SEC) as a Designated Offshore Securities Market under Regulation S; The Financial Services Authority in the UK as a Designated Investment Exchange; HM Revenue & Customs in the UK as a Recognized Stock Exchange; The Bermuda Monetary Authority as a Recognised Investment Exchange and as an Approved Stock Exchange under Australia’s Foreign Investment Funds (FIF) taxation rules.