A coalition of 15 industry bodies representing clearing members, asset managers, insurance companies, commodity end-users, hedge funds, derivatives exchanges and clearinghouses issued a warning on Nov. 3 that the leverage ratio component of the Basel III capital requirements will harm the strength and stability of the cleared derivatives markets worldwide unless it is amended to recognize the exposure-reducing effect of the collateral that clearing banks collect from their clients.
“We believe that the leverage ratio, as presently constructed, has certain unintended consequences that will make the financial system more fragile, severely undermine the global efforts to bring more derivatives in central clearing, and seriously impair the ability of end-users in the real economy to hedge their market risks,” the groups said in a Nov. 3 letter to Mark Carney, the chairman of the Financial Stability Board, Mario Draghi, the chairman of the Group of Governors and Heads of Supervision, and Stefan Ingves, chairman of the Basel Committee on Banking Supervision.
The groups that signed the letter included the Alternative Investment Management Association, the American Council of Life Insurers, CCP12, the Commodity Markets Council, the European Association of Clearing Houses, FIA, the International Swaps and Derivatives Association, the Managed Funds Association, the SIFMA Asset Managers Group, and the World Federation of Exchanges. The letter was also signed by five clearinghouse operators: CME Clearing, Eurex Clearing, Intercontinental Exchange, LCH Clearnet Group and LME Clear.
