MFA Pushes TMPG to Postpone and Revise Proposed Repo Margin Best Practices
The Managed Funds Association ("MFA") questioned the substance and timing of proposed best practices for the margining of non-centrally cleared bilateral repos ("NCCBRs") in light of the pending transition to central clearing.
In comments on a February 26, 2025 consultative white paper written by the Treasury Market Practices Group ("TMPG")—a group sponsored by the Federal Reserve Bank of New York—the MFA urged the TMPG to postpone its recommendations until the effects of the clearing mandate are clear. The MFA said it is unclear how much uncleared activity will remain post-transition, and emphasized that industry resources should be focused on mitigating legal and operational risks associated with the shift. The MFA also said it was necessary to wait for data from the Office of Financial Research ("OFR") before making policy changes. MFA pointed out that the TMPG itself acknowledged a lack of transparency in the NCCBR market and that analysis of OFR's data (particularly after the central clearing mandate) should inform any margining reforms.
The MFA also objected to a series of TMPG recommendations. The MFA urged the TMPG to:
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avoid a de facto mandate for minimum haircuts. The MFA stressed that haircuts and margining should remain risk-based, commercial decisions tailored to the facts and circumstances of each transaction. The group cautioned that rigid requirements could impair liquidity, ignore offsetting risk exposures and conflict with established market practices.
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clarify that the best practices apply only to NCCBRs, not centrally cleared or sponsored repos, where market participants are already subject to extensive FICC rules and margin requirements.
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reject prescriptive documentation mandates. The MFA argued that industry-standard agreements such as the Master Repurchase Agreement already provide robust legal protections and that imposing additional contractual requirements could be operationally burdensome and legally redundant.
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preserve flexibility for variation margin practices. On trades longer than overnight, MFA warned against implying that daily variation margin is always necessary. The group argued that in some cases, margining could lead to over-collateralization, or may be unnecessary if parties instead opt to terminate and reprice a transaction.
The MFA also objected to new risk management language in the TMPG's revised best practices that references client-related risks in central clearing arrangements. Given that the FICC already imposes comprehensive requirements on sponsoring dealers, MFA recommended deleting the new language as duplicative and unnecessary.