Scott O’Malia, the relatively new CEO for the International Swaps and Derivatives Association (ISDA), has been on the job for “some five weeks,” and he has been busy.
FTF News readers will remember that O’Malia was until recently a rather vocal and active CFTC commissioner who among other accomplishments brought attention to many of the kinks hampering the Dodd-Frank reforms for over-the-counter (OTC) derivatives trading.
In an online letter to ISDA members, posted Oct. 2, O’Malia shows no signs of slowing down. He recounts how he has been seeing firsthand what ISDA does for its members and the markets, including “the development of a standard margin model for non-cleared swaps, the Basel III capital rules, new documentation definitions or issues around bank resolution.”
But the action won’t stop there. O’Malia says he and ISDA will be focusing on:
- The new “resolution stay” protocol to address the concerns of key regulators, “who are intent on putting in place an alternative to the past practice of bailing out too-big-to-fail banks;”
- The delivery of “a single, standard initial margin methodology to regulators worldwide for their input and approval.” ISDA will stayed focused on achieving “a workable timetable” for implementing over-the-counter margin rules. The organization will also provide “timely comments on the draft rules that have been recently released;”
- Developing principles around “clearing house resolution and recovery in order to be prepared to contribute to the debate that is beginning worldwide,” he says. “While our objective is to prevent the possible default of a clearinghouse, we must have a strong understanding of the recovery or resolution process in the event of failure.”
He says his “biggest concern” over the past month has been the “importance of cross-border harmonization.”
Toward that end, 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,” O’Malia says. “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.”
He adds that regulators are aware of the need for consistency among jurisdictions and cites the Financial Stability Board’s position paper from last month on how regulators must defer to other countries’ regulatory regimes.
“But it’s important this recognition of the issue translates into action,” O’Malia adds. “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.”
If this letter is any indication, O’Malia is setting a strong agenda for ISDA and we will be watching this spare with lots of interest.
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