While many of the various regulatory changes that have been made to the derivatives industry in the last several years have been well-received by industry participants such as exchanges, one area that these entities have protested is the capital charges that Basel III have set forth for trades of the securities.
This is a less-visible aspect of the global regulatory regime for the world's banks, as much attention has been brought to the capital requirements specified and the timeline that will be used for implementing them.
The key importance of these particular facets is illustrated by the decision that the Basel Committee made earlier in the year to permit lending institutions to use a greater range of securities when fulfilling the liquidity capital ratio requirement.
Lately, exchanges have been voicing their opposition to the capital charges that derivatives will face under the regime, as industry participants believe that these will make trading the securities overly costly, according to Financial News.
Since a larger share of the world's derivatives contracts will be required to be traded through exchanges and also cleared centrally, market participants who want to use them to hedge will have to worry about fulfilling margin requirements. Under Basel III, banks trading derivatives to represent customers will have to pay an additional charge.
◦ Asset Liability Management
◦ Portfolio Risk
◦ Sensitivities & Hedging
◦ Stress Testing & Scenario Analysis