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Section 127 of the paper mentions that “margins should be calculated in a conservative manner”. Although ALFI appreciates that additional details have to be published on the criteria used to define haircuts, applying conservative haircuts to securities collateral might adversely impact investment funds. UCITS are typically long only investing and therefore have very limited collateral netting opportunities across their positions. In case conservative haircuts are applied to collateral posted to CCPs, this would potentially increase the amount of collateral a fund will have to post to CCP, therefore impacting the fund's liquidity. ALFI therefore recommends applying different haircut methodologies depending on the type of end clients the CCP will deal with so that long only investment vehicles are not penalised.
If UCITS are required to post cash as collateral to their clearing brokers, one of the options they have is to use repurchase (“repo”) transactions which in turn will impact the costs supported by end investors.
The ESMA discussion paper sets as a principle the obligation for both counterparties to a transaction to report to a trade repository. Although there is an option for one counterparty to delegate the reporting function to the other counterparty, ALFI thinks that ESMA should rather define who the reporting entity is in a given transaction, depending on the categories of counterparties involved in such transaction.
Given the sheer volume of the investors in UCITS, ALFI therefore recommends identifying only the fund itself as the beneficiary for trade reporting purposes, and excluding any final beneficiary from this reporting obligation.