FIA has submitted comment letters to the Commodity Futures Trading Commission and the US Securities and Exchange Commission supporting FICC and CME's proposed arrangement for cross-margining of customer trades in treasuries and treasury futures with offsetting risk. The proposed arrangement is under review at both the CFTC and SEC.
Noting that FICC and CME have a longstanding cross-margining program for BD-FCM’s proprietary positions cleared at the CCPs, FIA's letter highlights that the proposed arrangement is a welcomed expansion of that program. Customer cross-margining stands to decrease costs associated with the SEC’s recent rule requiring the central clearing of cash treasuries and repos.
Critically, though, the letter points out that current US bank capital rules make the customer cross-margining arrangement largely impractical for bank-affiliated BD-FCMs. This is because the capital rules do not appropriately recognize the risk-reducing effects of cross-product netting arrangements.
FIA is engaged on this topic with the US Prudential Regulators and asks the CFTC to support these changes to the capital rules to realize the full benefit for the industry of the FICC-CME cross-margining arrangement.
