U.S. regulators have launched a broad review of portfolio and cross-margining rules, seeking industry input on how to align collateral requirements with the realities of increasingly integrated securities and derivatives markets.

On June 26, the Commodity Futures Trading Commission (CFTC) and the Securities and Exchange Commission (SEC) issued a joint request for public comment on potential approaches to further harmonize regulatory frameworks governing portfolio and cross-margining across securities, security-based swaps, futures, swaps and related positions. The comment period will remain open for 60 days following publication of the request in the Federal Register.

The initiative reflects the regulators’ view that the boundaries separating securities and derivatives markets are becoming less distinct. In the request, the commissions note that “financial market participants are operating in an increasingly convergent financial ecosystem,” adding that “new trading models, digital infrastructure, and onchain, automated systems are increasingly blurring traditional jurisdictional lines”.

As a result, market participants increasingly manage portfolios that include related positions subject to different regulatory regimes. A single trading strategy may encompass cash securities, listed and over-the-counter options, futures, and both cleared and uncleared swaps. Yet these positions are often required to be maintained in separate accounts with distinct margin requirements.

The agencies acknowledge that the current framework can create inefficiencies. Existing regulations, they write: “may not permit required margin computations from recognizing offsetting exposures across certain securities and derivatives, which may lead to capital inefficiencies or increase liquidity demands without necessarily enhancing market stability”.

Portfolio margining seeks to address this issue by allowing related positions to be considered together when calculating collateral requirements. According to the commissions, the resulting efficiencies “can align margin requirements and other costs more closely with overall risks that a customer’s portfolio presents”.

They further note that portfolio margining may “improve efficiencies in collateral management, alleviate excess margin calls, improve cash flows and liquidity, and reduce volatility”.

The request builds on April actions by the two agencies, including the approval of exemptive relief and related rule changes to facilitate customer cross-margining of cleared U.S. Treasury securities and Treasury futures.

Existing programs also permit portfolio margining for certain cleared credit default swaps and for equity-based positions in securities accounts.

Despite these advances, the regulators emphasize that any broader implementation must account for important differences in the legal and regulatory treatment of securities and derivatives. “The further implementation of portfolio margining of securities and derivatives requires careful consideration of customer protection and other applicable regulatory objectives,” the request states.

To that end, the paper poses 19 detailed questions covering a wide range of topics. The commissions seek views on which additional securities and derivatives should be eligible for portfolio margining, whether new account structures may be needed, and how uncleared swaps and security-based swaps should be treated.

The request also asks market participants to address operational and legal challenges arising from differences in segregation requirements, capital rules and bankruptcy regimes. Particular attention is paid to how customer assets would be protected in the event of an intermediary or clearinghouse insolvency.

Risk management is another central theme. The agencies are soliciting feedback on appropriate margin methodologies, stress-testing practices and disclosure requirements that could accompany an expansion of portfolio and cross-margining programs. They also ask whether additional safeguards may be necessary for products subject to heightened volatility or differing trading hours.

In addition, the commissions are examining the potential competitive implications of broader margining arrangements. They seek comment on how expanded portfolio margining might affect broker-dealers, futures commission merchants, clearinghouses and foreign institutions that may already offer similar services.

Importantly, the agencies are encouraging commenters to support their views with data. As the request concludes, the commissions invite “empirical data and quantitative analysis relating to margin efficiency, collateral usage, liquidity effects, operational costs, and risk management outcomes associated with portfolio and cross-margining frameworks”.