The International Swaps and Derivatives Association (ISDA) published welcoming remarks by Chief Executive Officer Scott O’Malia setting out its priorities for EU trading book capital as the European Commission reviews implementation of the Fundamental Review of the Trading Book (FRTB) within the Basel III framework. The remarks argue for a robust, risk-appropriate and cross-border consistent market risk capital regime to avoid undermining bank intermediation and access to hedging in derivatives markets. In the European Union, Basel III has applied since the start of 2025, but FRTB is due to take effect from the start of 2026 under the third Capital Requirements Regulation. The European Commission opened a consultation on March 24, 2025 seeking feedback on three options: implement FRTB as planned from 2026, delay implementation by one year until the start of 2027, or apply targeted amendments for a three-year period. The consultation covers 10 potential changes to both the internal models approach and the standardized approach, including treating the profit-and-loss attribution test as a monitoring tool until the start of 2029, applying a temporary discount factor to the additional capital charge for non-modellable risk factors, and assigning a 0% risk weight for highly rated sovereigns under the default risk charge in both approaches subject to supervisory approval. The remarks also reference improved recognition of diversification in the standardized approach and a more pragmatic approach to capitalising equity investments in funds. ISDA plans to analyse the proposals with members and submit a response to the consultation. O’Malia also cited ISDA research on derivatives usage, including findings that 87% of nearly 1,200 companies reviewed use over-the-counter derivatives and that derivatives users in a study of nearly 7,000 firms had lower cashflow volatility and financing costs alongside higher returns and greater investment capacity.

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