Financial Market Regulatory News｜August 8

ISDA publishes close-out netting legal opinion

ISDA has published a new legal opinion that recognizes the enforceability of close-out netting under Chinese Futures and Derivatives Law (FDL). ISDA has consistently advocated for enforceable close-out netting as an indispensable pre-requisite for safe and efficient derivatives markets and has published netting opinions for more than 80 jurisdictions around the world.

By allowing counterparties to reduce their obligations to a single net payment due from one party to another, netting significantly reduces credit risk. “The publication of the netting opinion will give firms the certainty they need to trade derivatives with Chinese counterparties, enabling effective risk management and supporting economic growth,” said Scott O’Malia, ISDA’s Chief Executive.

CPMI-IOSCO discussion paper on non-default losses welcomed by FIA

Futures Industry Association (FIA) welcomes a recent discussion paper on practices used by central counterparties to address non-default losses, such as losses from cyberattacks or system outages. The paper was published by two international standard-setters, the Bank for International Settlements’ Committee on Payments and Market Infrastructures (CPMI) and the International Organization of Securities Commissions (IOSCO).

Jackie Mesa, FIA's Chief Operating Officer and Senior Vice President of Global Policy said that the guiding principle for allocating non-default losses should be who manages the risk. Proper approaches to non-default losses are important to protecting and enhancing the resilience of the global financial system.

Federal Reserve Board announces the capital requirements for large banks

Following its stress test earlier this year, the Federal Reserve Board announced the capital requirements for all large banks, effective on October 1. Large bank capital requirements are in part determined by the Board's stress test results, which provide a risk-sensitive and forward-looking assessment of capital needs.

The "Large Banks Capital Requirements" table shows each bank's total common equity tier 1 capital requirement, which is made up of several components, including: the minimum capital requirement, which is the same for each firm and is 4.5 percent; the stress capital buffer requirement, which is determined from the stress test results, and is at least 2.5 percent; and if applicable, a capital surcharge for global systemically important banks (G-SIBs).

Source: SHFE