US version of SA-CCR could hurt settled-to-market swaps

Capital requirements on a client’s hedged options portfolio could increase by 1,100%

Win/lose situation: regulators who gave STM thumbs up are now removing netting benefits

Swaps contracts with inbuilt daily settlement as an alternative to paying variation margin have been touted as a way to lower risk in the system – and lower bank capital requirements at the same time.

But less than two years after US supervisors appeared to accept these arguments, market participants say proposed new rules on counterparty credit risk cast fresh doubt on the accounting and regulatory treatment for settled-to-market (STM) swaps, and contradict the existing legal framework for