LONDON, Friday 19 June 2026 – The International Securities Lending Association (ISLA) and The International Capital Market Association (ICMA) have submitted a joint response to the 2026 U.S. Basel III notice of proposed rulemaking (NPR). The submission outlines critical recommendations to ensure that the new capital rules accurately reflect the operational realities of securities financing markets, which serve as the primary engine of systemic liquidity across the global financial system.
The response, drafted with counsel from Clifford Chance, calls for two primary adjustments to the proposed framework: the explicit recognition of modular cross-product netting architectures and a principle-based exemption for bankruptcy-remote pledge models.
Download the response here.
SFTs, specifically repo and securities lending, serve as the foundational plumbing of the global financial ecosystem. These high-volume, low-margin transactions drive secondary market liquidity, facilitate monetary policy transmission, and support orderly market-making for U.S. Treasuries and other sovereign debt. Crucially, they provide the core mechanics for collateral transformation, enabling banks to efficiently manage liquid asset pools under strict Liquidity Coverage Ratio (LCR) and Net Stable Funding Ratio (NSFR) requirements.
The global SFT market operates on the basis of internationally recognised master legal agreements, including the GMRA, GMSLA and MSLA, supported by annually updated industry legal opinions in over 70 jurisdictions. These frameworks form the bedrock of legal certainty, market resilience and operational efficiency across the industry. The ability to extend these well-established standards through the inclusion of additional products such as derivatives, by utilising a qualified cross-product master agreement, represents a natural and legally robust evolution of existing market practice.
This approach provides a frictionless mechanism for market participants to achieve prudent risk recognition and proportionate capital treatment, while ensuring ease of adoption and preserving the integrity of trusted legal frameworks. As such, it reflects both the maturity of the SFT market structure and the importance of building regulatory enhancements on globally consistent and time-tested legal frameworks.
Ina Budh-Raja, Chief Executive Officer, ISLA: “As the global implementation of Basel III reaches a critical milestone, it is vital that prudential regulations align capital requirements with the true underlying economics of risk. The Cross-Product Master Agreement (CPMA) and bankruptcy-remote pledge GMSLA structures are sophisticated, internationally recognised mechanisms that preserve operational continuity and market capacity. It is essential that we preserve the integrity of existing market standards and the unique structural and operational mechanics of natively documented securities financing markets safeguard the uninterrupted flow of vital buy-side liquidity into secondary capital markets.”
Bryan Pascoe, Chief Executive Officer, ICMA: “Efficient repo and securities financing markets are essential to liquid, resilient and competitive capital markets. The final Basel III framework should recognise the robust legal standards and market infrastructure already in place, including modular cross-product netting arrangements supported by established master agreements such as the GMRA. A proportionate approach will help align regulatory capital treatment with real economic risk, while avoiding unnecessary constraints on market liquidity.”
Key Positions:
- Recognition of Modular Netting: The Associations recommend that the Agencies amend the final rule text and Form FR Y-15 instructions to explicitly clarify that a “qualifying cross-product master netting agreement” can be validly established through an overarching framework like the CPMA. This ensures that systemic footprint indicators accurately reflect true net economic exposure rather than artificially inflated figures, preserving vital lending capacity across the financial services market.
- Exemption for Bankruptcy-Remote Pledges: ISLA proposes a principle-based carve-out under the revised Collateral Haircut Approach and the Supplementary Leverage Ratio’s E-C add-on for transactions where collateral is held in segregated, non-rehypothecatable, bankruptcy-remote accounts, as under the ISLA Pledge structure. Such structures materially reduce active counterparty credit risk and should not be penalised as if they were traditional, title-transfer exposures.
These adjustments are intended to preserve market liquidity during periods of financial stress, ensure that the regulatory environment remains fit-for-purpose for the modern, evolving financing ecosystem, and allow financial institutions to deploy capital efficiently to support wider economic stability.
