The International Swaps and Derivatives Association (ISDA) has intensified its call for US regulators to revise capital treatment for cross-margining before US Treasury clearing begins at the end of 2026. It argues that the standardized approach for counterparty credit risk must recognize genuine offsets across Treasury cash, repo and futures portfolios so banks can provide client clearing and market liquidity without facing capital requirements that overstate economic risk. The latest US Basel III proposal permits cross-product netting for certain repo and derivatives trades, including transactions between clearing members and clients. However, ISDA considers the proposed methodology excessively conservative because margin reductions achieved through cross-margining could trigger sharp capital increases. Its recommended adjustment builds on earlier proposals to remove regulatory and operational barriers to broader cross-margining. ISDA also called for derivatives and securities financing transactions to be assessed holistically across jurisdictions because repo markets supply the cash and high-quality liquid assets needed to meet derivatives margin calls. It is working with the Bank of England on the calibration of gilt repo haircuts and cautioned that poorly designed measures could reduce market-making capacity and increase liquidity and funding pressures during stress.
International Swaps and Derivatives Association urges risk-sensitive capital treatment before US Treasury clearing begins
The International Swaps and Derivatives Association urged US regulators to revise capital rules before Treasury clearing begins at the end of 2026. It said the proposed cross-product netting methodology could impose excessive capital on well-hedged Treasury cash, repo and futures portfolios, undermining cross-margining and client clearing. ISDA also called for risk-sensitive treatment of derivatives and securities financing transactions across jurisdictions.