Regulatory changes under the standardized approach for counterparty credit risk (SA-CCR) have imposed stricter capital requirements on banks for bilateral over-the-counter (OTC) derivative trades since the start of 2022, forcing market participants to re-evaluate their FX portfolios from a capital cost perspective.
Many FX market users – especially corporates – either do not post collateral or rely on non-cash collateral to margin positions, something that can be punitive under SA-CCR. For instance, sell-side banks that trade with corporates, pension funds and long-only asset managers that trade long-dated instruments with directional positions, face some big increases in capital requirements.
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