Everyone knows that two of the busiest days around the office are the day before you leave on vacation and the day you return. For some of us at ISDA today is getaway day, but that doesn’t mean there isn’t time to spare a few thoughts on the current state of the derivatives markets.
We had something of a “July Surprise” with the announcement on July 11 that peace was at hand between the CFTC and European regulators on cross-border derivatives regulation. We viewed that announcement, as many people did, as a positive development and a serious attempt to advance the discussion of global regulation of a global business.
As is often the case with broad pronouncements, however, the detail is in the detail, to coin a phrase. The next day the CFTC provided its final guidance on cross-border issues and additional time for compliance under an exemptive order. It is clear from the detail that the process of determining substituted compliance is going to be a critical one. It will be important to get both the substance and the process right. You will be hearing more from ISDA on this in the days ahead.
The CFTC work plan for derivatives is largely complete, with the finalization of the cross-border guidance and the publication earlier in the summer of SEF rules and related rulemaking. We will continue to work through the implementation challenges our members face, including the third wave of mandatory clearing in early September, but the drumbeat of deadlines is fading on the US front.
But don’t think it will be a vacation from here on out — far from it. Still, at least there will be a change in locale — Europe in particular, but all over the globe as well.
Europe is considering its approach to mandatory clearing and our various product steering committees are reviewing ESMA’s discussion paper. Confirmations and portfolio reconciliation face mid-September deadlines. And the European approach to the G20 commitment on execution will be hashed out over the course of the Fall through the consideration of the Markets in Financial Instruments Regulation in the trilogue process. We will be actively engaging with policy makers to identify areas with particular market sensitivity.
Globally, we are expecting approval by the G20 of the proposals on margin for uncleared derivatives. We have written extensively, both in derivatiViews and in submissions to regulators, about our significant concerns with the proposed initial margin requirements. It seems clear that initial margin in some form and quantum will be required, so we are also working on the development of a standard initial margin model to facilitate the introduction of any initial margin that might be required. Whatever the G20 decides will need to be implemented at national levels, so this issue is going to be on the front burner for months to come.
There are other things that await your return from vacation — major regulatory capital proposals, consideration of benchmarks, new credit derivative definitions, to name a few. In a few weeks, as summer ends (or winter for those of you in the southern hemisphere), and you feel the need to quickly get up to speed on all the developments affecting derivatives, consider attending our annual regional conferences in New York or London in September or in Asia in October. Details are on our website.
Wherever you may be headed—or even if you are staying put—safe travels and we look forward to your continued involvement and support.