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

Esen Onur, David Reiffen and Rajiv Sharma
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David Reiffen: Senior Economist, US Commodity Futures Trading Commission, USA
Rajiv Sharma: Derivatives Research Analyst, US Commodity Futures Trading Commission, USA

Journal of Securities Operations & Custody, 2023, vol. 15, issue 3, 228-237

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.

Keywords: uncleared margin rule; central clearing; non-deliverable forwards; swap market regulation (search for similar items in EconPapers)
JEL-codes: E5 G2 K22 (search for similar items in EconPapers)
Date: 2023
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