My view on Initial Margin haircutting for CCPs

Los Angeles

Initial Margin haircutting should be explicitly ruled out as an option for CCPs.

As the European Parliament's co-Rapporteur for the CCP Recovery & Resolution legislation currently being negotiated for the EU, I have and will continue to seek to implement the global standards agreed by the FSB and CPMI- IOSCO. However, as we move into the Amendment and Compromise stage of the EP's report, I have written to the Commodities and Futures Trading Commission, asking for clarification on the use of initial margin haircutting in the Unites States. They have replied to me confirming that the customer property posted as initial margin is not allowed to be exposed to the claims of other creditors. Moreover, not only is IM haircutting prohibited practise in US CCPs but US assets cannot be deposited in any CCP who's rules provision for its use.

In my contributions to the European Parliament's draft report, I have consistently sought to strengthen client protections and defend the end investor whilst ensuring the ultimate protection for taxpayers. It should be those direct members of the CCP, who currently have input into the recovery plans of the CCP, that should where possible bear losses.

We cannot encourage a culture of investment in the EU with political rhetoric alone, we need clear safeguards for clients of clearing members as we expand the role of central clearing in the financial system. This should extend to protecting collateral posted as Initial Margin by the clients and an explicit ban on it's use by the CCP. The haircutting of Initial margin would in my mind, fly in the face of client protection, and is something I will staunchly opposed as this process continues.