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The effect of the last two phases of the uncleared margin rule on participant swap decisions

Author

Listed:
  • Onur, Esen

    (Supervisory Economist, US Commodity Futures Trading Commission, USA)

  • Reiffen, David

    (Senior Economist, US Commodity Futures Trading Commission, USA)

  • Sharma, Rajiv

    (Derivatives Research Analyst, US Commodity Futures Trading Commission, USA)

Abstract

The last two phases of the uncleared margin rule went into effect in September 2021 and September 2022. In this paper, regulatory data is used to analyse the impact these regulatory changes had on non-deliverable forward (NDF) foreign exchange markets. The data suggest that the changes had little impact on total trading activity. However, a substantial increase is observed in the extent to which traders who came into scope during these phases centrally clear their trades. This is consistent with the premise that the rule change lowered the cost of clearing a trade relative to the trade remaining a bilateral contract between the traders. This finding is in contrast to the impact of previous phases in the sense that central clearing was chosen almost exclusively by clearing members in those earlier phases.

Suggested Citation

  • Onur, Esen & Reiffen, David & Sharma, Rajiv, 2023. "The effect of the last two phases of the uncleared margin rule on participant swap decisions," Journal of Securities Operations & Custody, Henry Stewart Publications, vol. 15(3), pages 228-237, June.
    • Handle: RePEc:aza:jsoc00:y:2023:v:15:i:3:p:228-237
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    More about this item

    Keywords

    uncleared margin rule; central clearing; non-deliverable forwards; swap market regulation;
    All these keywords.

    JEL classification:

    • G2 - Financial Economics - - Financial Institutions and Services
    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
    • K22 - Law and Economics - - Regulation and Business Law - - - Business and Securities Law

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