On January 5, MFA submitted a comment letter in response to the Basel Committee’s consultation paper, haircut floors for non-centrally cleared securities financing transactions. In the letter, MFA encourages the Basel Committee not to adopt the mandatory minimum haircut approach proposed in the paper, but instead consider an alternative approach similar to that proposed with respect to determining initial margin requirements under the European Market Infrastructure Regulation by the Joint Committee of the European Supervisory Authorities in their draft technical standards on margin requirements with respect to non-centrally cleared derivative contracts. To the extent the Basel Committee nonetheless adopts the mandatory minimum haircuts, the letter encourages the Basel Committee to provide that a failure to comply with haircut floors will reduce the value of the collateral in proportion to the difference between the haircut floor and the haircut applied by the banks, as suggested by the Financial Stability Board in prior consultations, rather than treating the entire transaction as unsecured, as proposed in the Basel consultation. MFA’s letter also encourages the Basel Committee to provide further guidance regarding the term “main index equities” and the treatment of convertible instruments under the proposed framework.
