A comprehensive framework would reduce unnecessary collateral demands and improve U.S. market efficiency
MFA supported the Commodity Futures Trading Commission (CFTC) and Securities and Exchange Commission (SEC) proposal to expand portfolio and cross-margining of securities and derivatives in a comment letter submitted. MFA encouraged the Commissions to replace the current ad hoc, product-by-product approach with a comprehensive framework for cross-margining.
Cross-margining allows market participants to account for positions that offset one another when calculating collateral requirements. Current rules can require economically related securities and derivatives to be held in separate accounts and margined under different regulatory regimes, forcing firms to post more collateral than the combined risk of their positions requires. A comprehensive framework would reduce these excess collateral demands and make it easier to extend cross-margining to additional products.
“Effective risk management looks at a portfolio’s net exposure, not just its individual positions,” said Jennifer Han, MFA Chief Legal Officer. “A more comprehensive cross-margining framework would align margin requirements more closely with actual risk, lower unnecessary costs for pensions, foundations, and endowments, and promote more efficient use of capital without compromising market resilience or investor protection.”
MFA also urged the Commissions to ensure cross-margining arrangements can withstand temporary operational disruptions. Temporary operational disruptions should not force investors to post additional collateral when the underlying risk of their positions remains unchanged. MFA recommended establishing contingency mechanisms that allow appropriate margin offsets to continue during temporary disruptions.
Read the full letter here.
Source: MFA




