Finadium
May 2019

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The US SA-CCR is another important step in how regulations influence the direction of liquidity in capital markets. Globally, regulators have sought a gold standard of risk management that serves to protect economies from systemic risk. The trade-off has been a reduction or redirection in capital markets activity as banks have been forced to hold more capital and provide fewer, or different, services to the market.

While there are no advocates for a return to pre-Basel III conditions, unequal regulations across products results in banks and clients opting for the least expensive route to achieve their investment goals. In recent years, the growth of synthetic financing in the form of Total Return Swaps has outstripped physical financing; this preferences the derivatives markets but hinders equity and bond market liquidity. The new US SA-CCR regulations are the next signpost for forecasting how competition between these products will shift.

This report reviews the calculations of the US SA- CCR and the older Current Exposure Method for derivatives, and the balance sheet impacts of Securities Financing Transactions. It makes the case for parity in balance sheet costs based on the economic similarity of many transaction types.

This report should be read by capital markets professionals working in prime brokerage, hedge funds, securities finance, Delta One and related businesses. It may be especially useful for regulators considering how to improve market liquidity while continuing to closely safeguard against the buildup of systemic risk.

Table of Contents

  • Executive Summary
  • Introducing the US SA-CCR
  • Comparison to the Current Exposure Method
  • US SA-CCR vs. Securities Finance
  • A Call for Fair and Competitive Regulation
  • About the Authors
  • About Finadium LLC
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