The Financial Markets Law Committee (FMLC) has published its response to the consultation paper that the European Securities and Markets Authority (ESMA) has published concerning draft regulatory technical standards (RTS) on risk-mitigation techniques for over-the-counter derivative contracts not cleared by a central counter party (CCP) under Article 11(15) of EMIR.
The FMLC draws ESMA’s attention to paragraphs 3.1 to 3.10 (inclusive) of its response, which discusses the issue of the compatibility of title transfer collateral arrangements (TTCAs) with the requirement under Article 1 of the draft RTS (segregation of initial margins).
In its response the FMLC asks the European Commission to confirm that the initial margin segregation requirement under Article 1 of the draft RTS is not inherently incompatible with the use of TTCAs in the transfer of initial margin. Assuming that the Commission is of the view that TTCAs could be compatible with the relevant requirements, the FMLC finds it desirable that article 1 be amended to clarify that the purpose of the requirement is operational in nature. The FMLC sets out proposed amendments to Article 1 in Appendix 1 of its response. Alternatively, the FMLC states that if the Commission wishes to clarify this point by other means, such as by way of the EMIR Questions and Answers, the FMLC would recommend that the Commission provide a statement that the use of the TTCAs is not inherently incompatible with Article 1. The FMLC also adds that it would be helpful if the Commission could confirm that certain collateral holding arrangements, such as charge-back, be considered “sufficient protection” for the purposes of Article 1.