The requirement looming next week for U.S. swap dealers to begin posting initial margin requirements for uncleared swaps transactions has prompted J. Christopher Giancarlo, the Commissioner of the Commodity Futures Trading Commission (CFTC), to argue financial regulators not to proceed with the September 1st implementation date following the European and Pacific regulatory delays.
“This is yet another example of the failure of U.S. policymakers to negotiate harmonization in regulations as called for in the September 2009 G-20 Leaders’ Statement in a manner that does not place American markets at a competitive disadvantage,” said Giancarlo in a regulatory briefing.
The scramble to comply with the deadline would come at the expense of U.S. businesses and their employees. This is due to the fact that the implementation delays announced by regulators in Australia, Hong Kong and Singapore last week would put U.S. concerned firms at a disadvantage compared to their overseas counterparts. In this case, they may either incur higher costs or choose not to hedge their risks because U.S. markets will have a higher margin structure than most of the rest of the world.
Realization of the implementing complexity
Although margin requirement reforms are part of Dodd–Frank plans to improve the stability of financial markets, through providing a buffer against counterparty risk from major players failing, the main concern among big banks has for some time been that the asynchronous implementation will waive billions of dollars from their revenues due to new customer business being taken by overseas competitors.
The aforementioned Pacific regulators said last week that a delay in implementing BCBS-IOSCO margin rules will be necessary to ensure a consistent application. They also described the move as “the most practical way forward to avoid unintended consequences to financial markets.” The European Commission announced its own delay several months ago. However, the CFTC has remained resolute about the September 1 rollout of initial margin rules even after other regulators having fallen behind on its own schedule.
Earlier in March 2015, BCBS-IOSCO published the final policy framework setting out margin requirements for non-centrally cleared derivatives transactions between certain financial entities. Since then, however, the market has been petitioning for a delay in implementation of these regulations for some time due to several considerations such as year-end code freezes, accounting and reporting processes.