28 September 2012

ICMA AMIC and ERC submit comments on margin requirements for non-centrally-cleared derivatives

The ICMA AMIC and the ICMA ERC have both submitted comments to BCBS and IOSCO in relation to their joint consultative paper on "Margin requirements for non-centrally-cleared derivatives".

ICMA AMIC response

The ICMA Asset Managers and Investors Council (AMIC) composition embraces the diversification and the current dynamics of the industry – representing the full array of buy side interests both by type and geography. The AMIC’s focus is on issues which are of concerned to its broad membership, rather than having a specific product focus.

• As provided for in EMIR regulation in Europe, existing derivative instruments should not be retroactively concerned by new regulation, as their economic conditions may just be impossible to maintain with the constraint of a collateral; a grandfathering clause is absolutely necessary to exempt existing transactions from collateral requirements even in case of reset lowering risk (to clear excess counterparty risk or to diminish notional amount, for example).
• There may be a rush of all stakeholders on collateral due to the fact that all operations will have to be collateralised at once and to a higher degree than eventually required, simply by lack of recognised CCPs. A staged implementation calendar is therefore required.
• The current wider regulatory agenda is requiring ever more (high quality) collateral, at a time when there is the downgrade of a substantial part of previously reasonable good collateral, and it is widely perceived that the market will suffer from a shortage of high quality collateral.
• A broad universe of assets as eligible collateral is therefore needed.
• An international framework is desirable to avoid market fragmentation and regulatory arbitrage.

ICMA ERC response

The European Repo Council (ERC) notes that this consultative paper seeks stakeholders’ views on the formulation of consistent regulatory margin requirements across jurisdictions. The ERC also notes that whilst the margin requirements considered by this consultative paper are specifically concerned with non-centrally-cleared derivatives, they are nevertheless just one part of a much broader framework of requirements for the utilisation of collateral. Repo/collateral management desks brings together different internal collateral sources and allocate that firm-wide according to needs; whilst at the same time delivering available collateral securities to the market and sourcing required collateral securities from the market. Accordingly the ERC considers that as the repo market is the channel through which collateral flows, it is important to take into consideration a number of points identified from the perspective of leading repo market participants.

Full AMIC-response

Full ERC-response

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