MFA Letter to ESAs on EMIR Risk Mitigation Regulatory Technical Standards

July 14, 2014

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


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.