FIA and ISDA have submitted a joint response to the Securities and Exchange Commission on the Fixed Income Clearing Corporation's proposed rule change to establish a dedicated Guaranty Fund at its Government Securities Division (GSD).
The associations welcome the proposal, which would bring the GSD into line with most other central counterparties globally by separating the mutualised default fund from initial margin, allowing members' clearing fund contributions to be held in a bankruptcy-remote manner, and reducing counterparty exposure to the GSD.
The associations urge the SEC to approve the changes and the FICC to implement them, before the US Treasury clearing mandate takes effect.
While supportive, the response raises several recommendations: The FICC should not mutualise non-default losses among members, but instead hold dedicated equity-funded resources in line with global best practice; and it should retain the current ten-business-day event period rather than shortening it to five, adopting a genuine cooling-off period that extends on each subsequent default.
The letter also comments on capped assessments, capital treatment, Guaranty Fund sizing and allocation, and collateral flexibility.
Read the response here.
