SIFMA AMG Responds to ESA Regarding Margin Requirements for Non-Centrally Cleared Derivatives

SIFMA Asset Management Group ("SIFMA AMG") submitted comments to the European Supervisory Authorities ("ESAs") on the second Consultation Paper concerning risk-mitigation techniques for OTC-derivative contracts that are not centrally cleared.

The SIFMA AMG explained that it did not respond to each of the specific questions posed by the ESAs – rather, it focused on the wider concerns relating to the application of the margin requirements. In particular, the SIFMA AMG stressed that:

• equivalence decisions should be made in good time prior to the implementation of EU margin requirements so as to avoid the double application of the margin requirements and the potentially conflicting rules of another jurisdiction and to achieve legal certainty for the market;
• in respect of clients managed by multiple asset managers, the initial margin threshold should be calculated in respect of those uncleared derivative transactions managed by each asset manager without aggregation, rather than on a legal entity (or legal entity group) basis;
• the ESAs should provide clarification that third-party custody arrangements in respect of cash posted as initial margin are acceptable by removing the requirement to protect against third-party custodian risk; and
• the treatment of foreign exchange transactions should be revisited.

See: SIFMA Comment Letter.Related news: ESAs Publish Second Consultation Paper on Margin Requirements for Non-Centrally Cleared Derivatives (with Patel Comment) (June 10, 2015); IOSCO Issues Final Report on Risk Mitigation Standards for Non-Centrally Cleared OTC Derivatives (January 28, 2015).