The Association Française de la Gestion financière is concerned that the proposal for payment of initial margin will be extremely complex, and difficult and costly to implement.
If payments of initial margin are retained, AFG believes that regulated funds (for example, UCITS and AIF) should either be exempt from paying initial margin, or if they are not exempt, be treated as "prudentially-regulated entities" with a high threshold amount, as for banks.
Indeed, initial margin is introduced to prevent a risk of delay in undoing a position held with a defaulting counterparty; the idea of introducing a threshold under which counterparties could decide not to call initial margin is very efficient to keep a focus on actors presenting a potential systemic risk.
In addition, even if not called prudentially regulated entities (PRE), funds are heavily regulated and closely supervised entities which present a level of risk far lower than any PRE as (i) their leverage, if any, is limited and (ii) all their assets guarantee counterparties (which are senior to share or units holders) and represent intrinsic collateral; they should benefit from the largest threshold of all institutions.
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© AFG - Association Française de la Gestion financière
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