02 October 2015

ESMA publishes responses to the Consultation on Review of EMIR Article 26 of RTS 153/2013

European Association of CCP Clearing Houses

EACH welcomes ESMA's proposal to allow CCPs authorised under EMIR to follow a policy of gross collection and posting of client margin. As ESMA notes, a policy of gross collection and posting of client margin to the CCP increases the amount of customer collateral at a CCP to address a default event in most cases, even where a higher liquidation period is used as part of a net margining regime.  Increased client margin at the CCP has a number of risk benefits including a reduction in the likelihood that one client's margin will be used to cover the losses of another client in a default event since each client will be fully margined at the CCP level. In addition, client gross margin collection and posting results in a reduction in systemic risk by significantly improving client portability (compared to liquidation) by allowing for full margin porting of clients by a CCP to multiple different non-defaulting clearing members and in turn reducing the chances that client positions will have to be liquidated which would exacerbate volatility in stress conditions associated with a clearing member default.

The Association of Corporate Treasurers

When considering any changes ESMA should take into account whether the changes would create an additional financial burden for large EU commodity producing corporates (NFC+) which trade as end-users. These corporates own physical assets which back their risk management trading activities and there is an argument that mandatory clearing should not apply to these corporates which statistically are not systemically risky, and which unlike FCs do not expose the taxpayer to loss through deposit insurance schemes if they fail. Any additional cost burden could result in reduced investment in the EU or ultimately relocation of activities.

LCH.Clearnet Group

LCH.Clearnet appreciates the opportunity to provide input to ESMA and fully supports the current regulatory efforts to reachagreement on equivalence between EMIR and the CFTC rules as this will ensure that financial markets operate in a more efficient, secure and competitive manner. However, in delivering these objectives, it is critical that a set of balanced incentives for CCP operators, as well as their participants (clearing members and clients), are in place in order to maintain financial stability and ensure fair competition and a level playing field for international CCPs.

LCH.Clearnet supports the principle of a liquidation-based minimum holding period by asset class with the ability for CCPs, if required per contract, to increase it if the liquidity analysis proves it insufficient.The holding period should be determined by the predicted length of time it actually takes to neutralise the risk of the defaulting clearing member (considering both observable liquidity and the practicalities of porting clients, e.g. operational logistics, of the CCP, the clients, and clearing members; and the bankruptcy laws of the relevant jurisdictions) and not the structure of the account or whether it is house or client.

Alternative Investment Management Association & Managed Funds Association

It is vital to the ongoing liquidity of ETD and OTC derivative markets that participants that transact on a cross-border basis have certainty that they will be subject to a single set of non-conflicting rules. They  recognise that there are certain differences between the US and EU regimes – such as the US rules’ one-day gross margin requirement and the EU rules’ two-day net margin requirement, as discussed in the Discussion Paper. However, they believe that these differences are minor and should not form a barrier to US equivalence. Rather, they consider that both EU and US rules appropriately and robustly implement the G20 commitments to make the derivatives markets safer and are compliant with the relevant IOSCO Principles for Financial Market Infrastructures.8

Nonetheless, they look forward to the Commission and ESMA’s work, following the Discussion Paper and the conclusion of equivalence negotiations, to harmonise the MPOR and other margin rules between the EU and US.  

All consultation responses

© ESMA