ISDA Survey Highlights Concerns Over Clearing Mandate
Posted by Colin Lambert. Last updated: August 11, 2022
The International Swaps and Derivatives Association (ISDA) has published a survey of 25 member firms in response to discussions by policymakers over the merits, or otherwise, of increased clearing of US Treasuries, and while there is support for the mechanism, it finds “little backing for broad clearing mandates”.
ISDA additional reports that some participants warned such a mandate would result in them reducing their activity or withdrawing from the market, thus negatively impacting liquidity more generally. Other respondents, ISDA adds, felt that increased clearing was unlikely to occur without a mandate, however.
Most respondents highlighted the importance of incentives to encourage additional clearing, including relief under the supplemental leverage ratio, increased access to clearing for clients, greater access to direct clearing for firms that meet applicable membership requirements, and the ability to post client margin to a central counterparty (CCP).
They also identified a number of benefits from increased clearing, including enhanced efficiency, transparency and market stability. Some felt those benefits were more important for repo markets, ISDA points out.
Participants agreed clearing would have cost implications, including higher fees, margin requirements and increased technology, legal and operational charges. Some also highlighted greater concentration of risk in CCPs. Equally, some respondents noted that increased clearing would not have prevented market volatility during the March 2020 COVID-19 shock.
“Our survey shows there’s currently very little consensus on the impact of increased clearing in the US Treasury market, suggesting further research on the costs and benefits is necessary,” says Scott O’Malia, ISDA’s chief executive. “We support the aims of US policymakers to strengthen the resilience of this critical market, and we hope our survey serves as a useful data point as they weigh up their options.”