ISDA, SIFMA, the American Bankers Association, the Bank Policy Institute and the FIA (collectively, the "Associations") commented on a proposal of U.S. banking regulators (see here for coverage) to implement the "standardized approach for counterparty credit risk" ("SA-CCR") by U.S. capital rules.

The Associations raised concerns over the potential impact of the proposed rule on the derivatives market, specifically equity and commodity derivatives. The Associations expressed general support for the move from the "current exposure method" to a more risk-based measure, but found that elements of the proposal "could have a significantly negative impact on liquidity in the derivatives market and hinder the development of capital markets."

The Associations called on the regulators to:

  • rethink the "calibration for commodity and equity derivatives" by revising the proposal's supervisory factors;
  • supply a more "risk-sensitive treatment" of initial margin;
  • reevaluate the "application and calibration of the alpha factor" to avoid exaggerating the risk of derivatives;
  • refrain from impacting the cost of doing business for commercial end users in ways that may lead to reduced hedging;
  • permit netting for all transactions covered by a "qualifying master netting agreement"; and
  • make sure that SA-CCR does not adversely affect client clearing.

The comment letter also contains a "quantitative impact study" to show the impact of the proposal, with the Associations stating that the data "clearly demonstrates the need for changes [to the proposal] to ensure that SA-CCR more accurately reflects risk in the derivatives market."

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