MFA Letter to ESAs on EMIR Risk Mitigation Regulatory Technical Standards

July 14, 2014

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Topics: AIMA alternative investment funds, Alternative Investment Management Association, base currency, Basel Committee for Banking Supervision, Canada, Cayman Islands, clearing threshold, collateral, collateral currency, concentration limits, consultation paper, Council of the European Union, counterparties, counterparty credit risk, dispute resolution procedures, documentation, duplicative regulation, efficiency, EMIR, equivalence, ESMA, European Banking Authority, European Commission, European Insurance and Occupational Pension Authority, European Market Infrastructure Regulation, European Parliament, European Securities and Markets Authority, European Supervisory Authorities, financial counterparties, France, G7, Germany, haircuts, harmonization, in-scope entity, Individual Segregation, initial margin, International Organization of Securities Commissions, International Swaps and Derivatives Association, IOSCO, ISDA, Italy, Japan, legal opinion, liquidation, liquidity, mandatory margin requirements, margin, market participants, minimum notional threshold, netting, non-financial counterparty, OTC derivatives market, proportionality principle, regulatory arbitrage, regulatory requirements, regulatory technical standards, securities, segregation, settlement currency, settlement period, substituted compliance, systemic risk, third country, third party custodian, trade repositories, trading costs, transparency, uncleared derivative, United Kingdom, United States, US Treasuries, variation margin, verification requirement,
From: MFA, Stuart Kaswell

To:

European Banking Authority, European Insurance and Occupational Pensions Authority, European Securities and Markets Authority

MFA submitted a comment letter to the European Supervisory Authorities (ESAs) on their joint consultation paper on “Draft regulatory technical standards on risk-mitigation techniques for OTC-derivative contracts not cleared by a CCP” related to the European Market Infrastructure Regulation (EMIR).   In the letter, among other things, MFA requests that the ESAs: (1) require financial counterparties and non-financial counterparties over the clearing threshold to post as well as collect variation margin; (2) clarity that the requirements related to daily collection and calculation of initial margin (IM) do not require calculations or collections to take place intraday or more than once a day; (3) require that the model used to calculate IM requirements be transparent, replicable, and predictable; (4) not to apply the proposed concentration limits for posted collateral to high quality government debt (e.g., debt instruments of G-7 countries ); and (5) not require counterparties to obtain legal opinions verifying that their segregation arrangements meet the proposed requirements.  In the letter, MFA also expressed concerns regarding certain issues that may arise with respect to the proposed requirements due to interpretational issues under Article 13 of EMIR in respect of what it means for an entity to be “established” in a third country.

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