Derivative exchanges, leading global liquidity providers and ABN AMRO Clearing respond
- Clearing
On 6 July 2016, ABN AMRO Clearing Bank, along with Akuna Capital, Atlantic Trading London, Barak Capital, BATS Global Markets, BOX Options Exchange, Chicago Board Options Exchange (CBOE), CSS, DRW, Eurex, Eurex Clearing, Financial Market Engineering (FME), Flow Traders, Geneva Ireland Financial Trading, IMC Trading, Intercontinental Exchange (ICE), Jane Street Financial, Liquid Capital Markets, Mako Global Derivatives Partnership, Maven Derivatives, NASDAQ, The Options Clearing Corporation (OCC), Optiver, Osaka Exchange, OSTC, Quantlab Financial, Ronin, RSJ, Spire Europe, Sun Trading, TOM MTF, Tyler Capital Partners, Virtu Financial and Volant Trading responded to the consultation of the Basel Committee on Banking Committee on Supervision (BCBS) on the leverage ratio (LR).
The respondents argue that unless the Standardised Approach for Counterparty Credit Risk (SA-CCR) method is allowed as a replacement for the Current Exposure Method (CEM) in the leverage calculation for exchange-traded derivative (ETD) exposures, the application of the LR will result in a range of unintended consequences for General Clearing Members (GCM), market makers and financial market infrastructure. The LR in its current will fundamentally threaten business models and impact the liquidity and stability of global financial markets. In the response, the BCBS is applauded for their efforts in reconsidering the application of the CEM methodology. The respondents believe the revised proposals will allow us to work towards an appropriately calibrated and sustainable leverage ratio framework without creating serious economic disincentives for participants in the ETD market. The proposed revisions and the introduction of a modified version of SA-CCR would dramatically reduce the unintended consequences currently faced based on CEM. In October 2015, AACB and its partners wrote to the BCBS to address inconsistencies and damaging effects of the current framework.
This consultation follows wider calls by the industry and regulatory community to rethink the LR approach in its present form.