ISDA CEO Urges Regulators and Policymakers to Better Understand Effect of Derivative Regulatory Reforms

ISDA CEO Scott O'Malia called on regulators and policymakers to better underestand the impact of derivative regulatory reforms.

In remarks delivered at the Mayflower Hotel, Palm Court Ballroom, Mr. O'Malia pointed out that substantial progress has been made in derivatives regulatory reform. Additionally, Mr. O'Malia noted two examples where recalibration of the rules is required: (i) the incentives for clearing and (ii) the threshold for the final phase of margin requirements for non-cleared derivatives.

He said regulatory incentives that are not calibrated correctly will make it "overly punitive to trade bilaterally" and make non-cleared derivatives more expensive. Mr. O'Malia stated that ISDA will collaborate with policymakers to "optimize clearing," but also ensure a "healthy market for bilateral trades." Regarding non-cleared derivatives, Mr. O'Malia said that the while the policy (i.e., the non-cleared margin requirements are phased in over 4 years to 2020 starting with the largest firms) exempts those that do not pose any systemic risk from exchanging margin, it still “exposes small end users to significant compliance costs for no gain.” Mr. O’Malia contended that the threshold for compliance increase from $8 billion in aggregated non-cleared average notional amount of non-cleared derivatives to $100 billion.

According to Mr. O'Malia, benchmark reform and Brexit are two areas where global harmonization and cooperation are needed to "ensure positive outcomes and maintain safe and efficient financial markets."