Margin test, open access, repo stress

The week on, December 14–20, 2019

7 days montage 201219

US firms must rerun non-cleared margin test in March

Proposed CFTC calculation delay offers in-scope firms chance to trade out of phase five compliance

Leaked email reveals new assault on CCP open access rules

Largest group in European Parliament wants to shoehorn delay into crowdfunding legislation

Squeezed or saved? Market divided over year-end repo stress

Fears of a cash-crunch hang heavy despite Fed’s repo giveaway and move to term funding

COMMENTARY: Margin tonic

It is not often that financial regulators can bask in a warm glow of goodwill and popularity in the industry they serve, but the Commodity Futures Trading Commission and a group of prudential regulators may just have added their names to the Christmas card lists of hundreds of US buy-side firms.

The regulators have announced plans to shift the three-month window for derivatives users to calculate their average aggregate notional amounts (AANA) of outstanding non-cleared derivatives from a period running June-to-August, to one from March-to-May.

The AANA figure determines whether firms are caught in forthcoming waves of non-cleared margin rules. The fifth and penultimate phase of compliance, starting in September 2020, requires any entity with more than $50 billion AANA to post initial margin on non-cleared derivatives for the first time. Industry body Isda estimates the phase will apply to around 300 firms globally.

The US regulators’ proposal is important because – inadvertently or otherwise – it would give entities that have already totted up their exposures a second shot at doing so in the new March-to-May window next year. Naturally, firms that are close to the threshold might take steps to reduce their exposure and avoid the margin obligations until September 2021, when the threshold drops to $8 billion and a further 775 firms are set to be hoisted in the net.

As Isda’s global head of data, Tara Kruse, says: “We had already passed the US phase five AANA calculation period when these rules came out. Frankly, it could be welcome for somebody already caught in phase five.”

The move would bring the US calculation window in line with other jurisdictions, including the European Union – which one clearing house official describes as “cleaner from a global perspective, particularly given that some of the managers we deal with are accounts based in multiple jurisdictions”.

The EU is planning to return the favour by exempting equity options from the non-cleared margin regime – but only for a year. The new proposals would align the bloc with US rules until the end of 2020. The debate over whether to make the exemption permanent hinges on the perceived risk to the financial system of not including equity options in the margin requirements.


The largest quartile of European Union banks used the advanced measurement approach (AMA) to calculate 49.7% of their op risk capital, as of end-June 2019. The three smaller quartiles of banks used the AMA for 8.6% of their op risk capital, by contrast.


“Legislation could provide a solution for certain legacy products, but, at the moment, it feels more like an aspirational goal rather than a tangible solution to the Libor transition problem as a whole” – Alexander Biles, Ashurst, on the hurdles for ditching US dollar Libor for cash instruments.

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