ISDA Urges Regulators to Realign Derivatives Margin Implementation Schedules
Commentary by Steven Lofchie
ISDA CEO Scott O'Malia urged regulators to realign their timetables to the global implementation deadline for margin requirements for uncleared derivatives.
Noting the European Commission's recent announcement that it would not finalize its uncleared derivatives margin requirements in time for the planned September 1, 2016 beginning of margin, Mr. O'Malia observed that no other jurisdiction to date has delayed its margin requirements. Mr. O'Malia acknowledged the value of spending the "necessary time to ensure [that European regulators'] rules are appropriate," but contrasted that approach with the punctuality of other jurisdictions. He concluded that the European Commission's timetable-splintering delay creates an "unlevel playing field," and introduces complexity that will increase exponentially with the scheduled phase-in of variation requirements in March 2017. In consideration of these issues, Mr. O'Malia said, ISDA is urging regulators to realign their finalization schedules with the global implementation deadline in the interests of ensuring efficient functioning of derivatives markets.
Commentary
To the extent to which U.S. regulators impose burdensome requirements on domestic financial institutions and the customers of those institutions before European regulators follow suit, the United States will lose business. Such lost business is not regained easily, and regulators should not assume that it will return to U.S. firms once it has been lost. Establishing a swaps or financing arrangement can be operationally intensive: once customers have used systems frequently that allow them to trade with non-U.S. counterparties, there is no reason to believe that those customers will stop using those systems once the European regulations become effective. In short, being the last country to adopt burdensome regulations has significant strategic advantages.