The International Capital Market Association (ICMA) and the International Securities Lending Association (ISLA) argue that US regulators should look more closely at how individual capital components contribute to overall exposure across repo, securities lending and derivatives markets in their Joint Response to Basel III NPR.
The joint response uses two securities financing examples to make that case: recognition of cross-product netting under the Cross-Product Master Agreement (CPMA), and prudential treatment of bankruptcy-remote pledge structures under ISLA’s Pledge GMSLA documentation.The submission responds to March 2026 proposals from the Federal Reserve, Federal Deposit Insurance Corporation (FDIC) and Office of the Comptroller of the Currency (OCC) covering the US Basel III Endgame framework, the standardised approach for risk-weighted assets, the global systemically important bank surcharge and the FR Y-15 systemic risk report.
The US agencies’ March proposals revised the 2023 Basel III Endgame package following sustained industry criticism. The regulators presented the updated package as a more risk-sensitive and streamlined framework for the largest banks and firms with significant trading activity, including revised treatment of market risk under the Fundamental Review of the Trading Book (FRTB). ICMA and ISLA’s response shows that the industry debate has moved into how capital measures interact across trading, securities financing, collateral and systemic-risk reporting.
The International Swaps Dealers Association (ISDA), the Securities Industry and Financial Markets Association (SIFMA), the Institute of International Finance (IIF) and other trade groups argue that the revised framework still risks producing aggregate capital requirements above underlying economic risk. Their concern is that market risk, counterparty credit risk, credit valuation adjustment, operational risk, default risk, leverage exposure and systemic indicators can capture related exposures through separate calculations. The result, they argue, can be a capital stack that overstates the risk of trading, derivatives and securities financing activity.ICMA and ISLA’s response brings a securities financing lens to the argument. Their CPMA proposal asks regulators to recognise modular cross-product netting where an overarching agreement connects separate product-specific master agreements, including the Global Master Securities Lending Agreement, Global Master Repurchase Agreement, Master Securities Lending Agreement, Master Repurchase Agreement and ISDA Master Agreement.
The point is not that repo, securities lending and derivatives should lose their separate legal and operational treatment. ICMA and ISLA argue that the CPMA preserves those separate agreements while allowing a single net close-out amount to be calculated after default. That distinction is central to their FR Y-15 argument. If cross-product netting is legally enforceable, they say systemic indicators should reflect the net economic exposure rather than a gross measure across separate product silos.
The same issue sits behind the wider FRTB debate. FRTB changes how banks measure trading-book risk, including standardised and internal model approaches, risk-factor treatment, expected shortfall, default-risk charges and profit and loss attribution. But market-risk capital does not operate alone. For banks active in securities financing and derivatives, the economics of intermediation are shaped by the combined effect of FRTB, counterparty credit treatment, credit value adjustment (CVA), leverage exposure, G-SIB indicators and collateral rules.
That interaction is important for low-margin balance-sheet businesses. Repo and securities lending support government bond market-making, collateral transformation, liquidity management and stable funding. ICMA and ISLA argue that if capital and systemic reporting measures fail to recognise legally enforceable netting, banks may face inflated size and interconnectedness indicators, reducing balance-sheet capacity for activity that supports secondary-market liquidity.
ISLA’s Pledge GMSLA proposal takes the exposure question into collateral treatment. Under the pledge model, a banking organisation borrowing securities pledges collateral to the lender through a bankruptcy-remote security interest structure, rather than transferring title in a way that allows reuse. ISLA argues that where the collateral is segregated, held with a triparty custodian, non-rehypothecatable and supported by legal opinion, it should not be treated as creating the same exposure as reusable collateral under conventional structures.
ISLA is therefore asking the agencies for a principle-based carve-out from the revised Collateral Haircut Approach and the Exposure-minus-Collateral add-on of the Supplementary Leverage Ratio. The association’s argument is that a borrower should not be required to hold capital against an exposure to the lender where the collateral remains insulated from the insolvency estate and can be recovered without the borrower taking counterparty credit risk.
For capital markets firms, the operational challenge is evidence. Banks will need to connect legal agreements, enforceability opinions, collateral records, triparty account data, trading-book classifications, FRTB calculations, systemic reporting and capital attribution. The debate is moving from headline calibration to whether firms can show how the risk-reducing effect of netting and collateral is reflected across the regulatory capital stack.
ICMA and ISLA have taken the Basel III Endgame debate into the operational plumbing of securities financing. With the 18 June 2026 comment deadline now passed, the next milestone is the federal agencies’ review of submissions and movement towards final Basel III/FRTB rules for large banks and firms with significant trading activity. For capital, risk and regulatory reporting teams, the unresolved question is whether final rules will assess overall exposure across connected activity, or continue to rely on component-level measures that industry groups say may overstate risk in legally netted and collateralised markets.
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