IIF has written to the Basel Committee and IOSCO on the issue of margin requirements for derivatives not cleared at a central counterparty. It says that the two-way initial margin exchange between financial firms and systemically important non-financial institutions could worsen the shortage of liquid financial instruments and have pro-cyclical effects during periods of stress. In mitigating counterparty risk, financial firms should be allowed to use regulatory capital charges calculated under the credit valuation adjustment method. Non-financial firms should be encouraged to focus on ensuring that any netting arrangements are legally enforceable. (Source: Re: Margin Requirements for Non-Centrally-Cleared Derivatives)