ISDA, IIF and AFME have written to the Basel Committee and IOSCO to comment on misperceptions that have surfaced in the regulators' consultation on margin requirements for non-centrally-cleared OTC derivatives. They warn that initial margin requirements would put an end to the OTC derivatives market, depriving users of a risk management tool. They comment that:
- not all OTC derivatives can or should be cleared. Only those that can be properly risk managed and can be quickly unwound by clearing houses should be considered for clearing. Higher margin requirements would not move OTC derivatives to clearing houses, because they simply cannot be cleared;
- many socially useful types of OTC derivatives cannot be cleared, but this ineligibility does not necessarily mean they are more risky;
- if users are forced to use standardised contracts, which don’t offer perfect hedges, this will lead to volatility and unmanaged losses;
- higher capital requirements already reflect the risk of OTC derivatives; and
- phasing in the requirements would not mitigate their impact.