Market Participants Agree Most Expedient Path Is to Ensure CMBX Becomes a Cleared Instrument:
CREFC members are now working to move CMBX onto clearing facilities. CREFC is acting as a facilitator in streamlining the onboarding process where possible.
CREFC Policy & Strategy
CREFC members broadly support any measure that enhances CMBS/CMBX liquidity. With this imperative, CREFC has agreed to represent the industry in ensuring timely onboarding at one or more clearing facilities. At this time, CREFC does not intend to seek revisions to current requirements.
Additional Background & History
How the Rules Work and Who Complies: Collectively, the rules promulgated by the five agencies (Fed, FDIC, OCC, SEC, and CFTC) cover nearly all dealer entities and require that OTC derivatives be slotted into appropriate buckets by risk, requiring varying levels of initial margin. Since the industry voiced its initial concerns, CMBX market makers have begun to work in earnest with at least one clearing house to onboard CMBX.
- Problems with the OTC Derivatives Regulatory Framework: There are many problems with overall OTC derivatives regulation, the central one being that risks could be concentrated in a few entities, as opposed to being spread across market participants. The CFTC’s Chairman J. Christopher Giancarlo maintains that assessing central counterparties (CCPs) with capital charges on top of margin requirements assumes that the CCPs retain the risk and emphasizes balance-sheet safety over market liquidity. Moreover, Giancarlo believes that the CCPs are not in need of balance sheet fortification. The Commissioner also maintains that because swaps rules are so complex, it is impossible for large players to perform the functions of clearing and settlements for themselves.