The 8% of initial margin futures commission merchants will have to pay into clearinghouse default funds may be too high for some to afford. This will disincentivize market participants from offering clearing services, according to Robert Lee, director of systemic risk management at Deutsche Bank.
“I think there are some concerns about whether or not there is enough capital [for the default fund] at the FCMs to accommodate all these clients’ position,” said Lee, on a panel at the 2012 International Swaps and Derivatives Association North America Conference in New York yesterday. More initial margin would lessen the concerns of default and should therefore reduce the amount required for the default fund accordingly. “But I think it is sort of on the other way, because [the regulators] approached it is just a percentage of [initial margin],” Lee said.
The Commodity Futures Trading Commission has adopted rules mirroring current regulation on futures and required 8% of initial margin as default fund payment. But swaps are less liquid and involves more risk than futures, so the initial margin and therefore the capital demanded for swaps may become exorbitant for some FCMs. Lee said the discussion needs to be held “as soon as possible” because the clearing requirement is to begin early next year.
