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Hamilton, Bermuda: September 7, 2018— In a press release today The World Federation of Exchanges called for global reform of leverage ratio.  The release stated:


London, Friday 7 September 2018 – The World Federation of Exchanges (“WFE”), the global industry group for CCPs and exchanges, has today published its response to the four global standard-setting boards assessing the effectiveness of incentives to centrally clear over-the-counter (OTC) derivatives. The WFE calls for prompt and concerted action internationally to address issues confirmed in the August 2018 consultation paper from ‘the Committees’: the Basel Committee on Banking Supervision (BCBS), the Committee on Payments and Market Infrastructures (CPMI), the Financial Stability Board (FSB) and the International Organization of Securities Commissions (IOSCO).


The consultation seeks to “examine whether adequate incentives to centrally clear OTC derivatives are in place…and help inform the relevant standard setting bodies as they identify and deliver adjustments.”


The key highlights from the WFE’s detailed, technical response are as follows:


·         The WFE welcomes the work that has gone into implementing important post-crisis reforms to OTC derivatives markets, and this study into their impact. Whilst agreeing that reforms have generally contributed to incentives to clear, the WFE urges concerted action to resolve the persistent issues with the way the leverage ratio treats segregated client initial margin.


·         The WFE agrees with the report’s analysis that, left unmodified, the leverage ratio poses disincentives to client clearing, as the current calculation fails to recognise the exposure-reducing impact of segregated client collateral held by a bank. This can render the provision of client clearing uneconomical, driving participants from the market and reducing access to hedging products, potentially increasing risk in the system. The solution is reforming the treatment of client initial margin under the leverage ratio by introducing an offset.


·         The WFE believes that the Committees must now work together to deliver a globally consistent approach to the incentives regime and remediate the deficiencies identified in the report.  We also call for a future study at the global level that considers the regime for clearing both OTC and exchange-traded derivatives.


Nandini Sukumar, CEO, WFE said: “WFE members believe that segregated client initial margin should be recognised in the capital regime as reducing the leverage exposure measure.  We call for concerted action to resolve the lingering and persistent issues here, and believe that it is desirable to address this, and other long-standing issues, at the global level and in a co-ordinated way across jurisdictions.


“Looking ahead, we urge the Committees to develop an action plan, building on the conclusions of this report. It would also be valuable to have at least one further, detailed look across the whole cleared business, both listed and OTC, and to do so in a more granular fashion, examining the capital and resource allocations that financial intermediaries are making in practice.


Richard Metcalfe, Head of Regulatory Affairs, WFE added: “The capital rules are by far the biggest issue at the moment. Requirements to exchange collateral may make it relatively expensive to face derivatives counterparties directly, but that does not mean that central clearing is appropriately incentivised. In fact, the rules are undermining client clearing of all derivatives, whether OTC or exchange-traded. This can be fixed simply – and consistently with the G20 reforms of 2009 – by recognising the risk-mitigating effect of margin, rather than penalising it.”


You can read the full response here.


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About the World Federation of Exchanges (WFE):

Established in 1961, the WFE is the global industry association for exchanges and clearing houses. Headquartered in London, it represents over 200 market infrastructure providers, including standalone CCPs that are not part of exchange groups. Of our members, 36.8% are in Asia-Pacific, 42.6% in EMEA and 20.6% in the Americas.  WFE exchanges are home to nearly 45,000 listed companies, and the market capitalisation of these entities is over $82.5 trillion; around $81.8 trillion (EOB) in trading annually passes through the infrastructures WFE members safeguard (at end 2017).


The WFE is the definitive source for exchange-traded statistics, and publishes over 350 market data indicators.  Its statistics database stretches back more than 40 years, and provides information and insight into developments on global exchanges.


The WFE works with standard-setters, policy makers, regulators and government organisations around the world to support and promote the development of fair, transparent, stable and efficient markets.  The WFE shares regulatory authorities’ goals of ensuring the safety and soundness of the global financial system, which is critical to enhancing investor and consumer confidence, and promoting economic growth.  


The role of the WFE’s CCP Working Group is to share information on key developments related to central counterparty clearing, and prioritising and engaging on relevant policy issues while educating stakeholders about the role of clearing. It is comprised of more than 25 CCPs, represented by business leaders and regulatory/risk management experts, spanning the Americas, EMEA and Asia-Pacific. The group has an in-person meeting each year at the WFE’s IOMA Clearing & Derivatives conference, and holds additional calls throughout the year to steer the WFE’s policy development.


For more information, please contact:


Anna Watson

Head of Communications, The World Federation of Exchanges 


Phone:   +44 20 7151 4137 / +44 7850 287


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TEL: +1 (441) 292 7212
FAX: +1 (441) 292 7619


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