ISDA urged the European Commission ("Commission") and the European Securities Authorities ("ESA") to extend certain derogations relating to clearing and margin. ISDA said the derogations remain valid and have yet to be addressed.
In a letter to the Commission and ESA, ISDA lauded the European Securities and Markets Authority's Final Report, which proposed an extension until December 21, 2020 of the equivalent derogations under the separate clearing regulatory technical standards ("RTS").
ISDA also urged the Commission and the ESA to extend a time-limited derogation under Article 38 of the Margin RTS relating to the treatment of single-stock equity options and index options (currently set to expire on January 4, 2020).
Commentary / NihalPatel
The treatment of OTC options on securities continues to be one of those issues that makes full international "harmonization" of derivatives regulatory requirements a tricky matter. First, these products are not even uniformly regulated among U.S. participants, given that only registered broker-dealers are subject to FINRA margin requirements that apply to OTC options. Second, it is highly unlikely that Congress would adopt legislation to have these products regulated as "swaps" in the United States and, as such, they will continue to be regulated differently in the United States than in other jurisdictions with derivatives regulatory requirements. ISDA's point here makes sense, because if the EU were to apply their margin requirements to OTC options on securities, it could result in market fragmentation and an uneven playing field among derivatives dealers.
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