SIFMA/SIFMA AMG Further Implementation of Portfolio Margining and Cross-Margining of Securities and Derivatives RFC

Summary

SIFMA and SIFMA AMG provided comments to the U.S. Commodity Futures Trading Commission (CFTC) and the U.S. Securities and Exchange Commission (SEC) on the Commissions' Joint Request for Comment on Further Implementation of Portfolio Margining and Cross-Margining of Securities and Derivatives. The request seeks input on potential ways to expand portfolio and cross-margining of securities, derivatives, and other assets subject to the jurisdiction of either or both Commissions.

Excerpt

The Securities Industry and Financial Markets Association ¹ and its Asset Management Group ² (collectively, "SIFMA") appreciate the opportunity to provide comments to the U.S. Commodity Futures Trading Commission (the "CFTC") and the U.S. Securities and Exchange Commission (the "SEC" and together with the CFTC, the "Commissions") in response to the Commissions' Joint Request for Comment on Further Implementation of Portfolio Margining and Cross-Margining of Securities and Derivatives (the "Request for Comment"). The Request for Comment seeks input on potential ways to expand portfolio and cross-margining of securities, derivatives and other assets that are subject to the jurisdiction of either or both Commissions. ³

As the Commissions recognize, financial markets are becoming increasingly interconnected, and market participants frequently manage portfolios or implement hedging and other trading strategies that use economically related positions across cash securities, listed and over-the-counter options, futures, swaps, and security-based swaps ("SBS"). More recently, they also trade other non-securities financial assets, such as digital commodities. These positions may reference the same underlying asset, address the same economic exposure, or otherwise serve related risk-management purposes. Nevertheless, current regulatory requirements often require such positions to be maintained in separate accounts and margined under different methodologies, even where the positions present offsetting exposures. As the Request for Comment observes, this regulatory structure may produce capital inefficiencies or increased liquidity demands "without necessarily enhancing market stability." In some circumstances, preventing recognition of economically offsetting positions may itself increase market and systemic risk by generating duplicative liquidity demands, additional settlement flows, and incentives to unwind otherwise risk-reducing positions during periods of market stress.