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I am pleased to report that the International Swaps and Derivatives Association (ISDA) has delivered a single, standard initial margin methodology to regulators worldwide for their input and approval. We will remain focused on achieving a workable timetable to implement the OTC margin rules and provide timely comments on the draft rules that have been recently released. ISDA’s staff is also working to develop principles around clearing house resolution and recovery in order to be prepared to contribute to the debate that is beginning worldwide. While our objective is to prevent the possible default of a clearing house, we must have a strong understanding of the recovery or resolution process in the event of failure.
Perhaps the biggest concern I have consistently heard over the past month or so is the importance of cross-border harmonization. In the medium and longer term, ISDA will remain focused on providing solutions to global regulators to resolve their differences and create an outcomes-based regulatory regime that relies on substituted compliance. ISDA will continue its advocacy for more consistent data reporting standards across jurisdictions; trading protocols and platforms that aggregate liquidity, rather than fracture it; and consistency in rules surrounding clearing mandates and OTC margining. Regulators are very much aware of this issue. In fact, the Financial Stability Board in mid-September published a paper stressing the need for regulators to defer to other countries’ regulatory regimes.
But it’s important this recognition of the issue translates into action. Without it, markets will fragment, splitting liquidity pools along geographic lines and increasing costs for end-users. That’s clearly bad for firms, it’s bad for markets and it’s bad for customers. Over the next month, I will continue to participate in the regional conferences in Asia and use the time to meet with ISDA members to listen to their priorities and engage with regulators to remind them of the important work ISDA performs on behalf of its large and diverse membership.