On Sept. 30, FIA Global, the International Swaps and Derivatives Association, and the Investment Association filed a joint response to the discussion paper issued by the European Securities and Markets Authority in August regarding Article 26 of RTS No. 153/2013, which relates to the clearing of client positions in derivatives.
Article 26 establishes the regulatory technical standard for the amount of time used by clearinghouses to transfer or liquidate the positions of a defaulting clearing member. The liquidation period is currently set at a minimum of two days, and ESMA’s discussion paper asked for feedback on the differences with clearing standards in the U.S. with respect to the liquidation period and other aspects of margin methodologies.
In their joint response, the three trade associations noted that the Committee on Payments and Market Infrastructures and the International Organization of Securities Commissions are assessing the implementation of standards for clearinghouses, including margin methodologies, at the global level. The three associations said they look forward to supporting the effort to create global standards. They also emphasized that regulators should focus on ensuring that clearinghouses implement robust margin frameworks based on appropriate risk criteria, rather than prescribing specific standards for each element of their margin methodologies.
“Our members believe that the calculation of appropriate margin levels for client accounts at CCPs must take into account several factors in order to ensure that the amount of margin the CCP collects is consistent with its default management objectives, viewed in light of the legal, regulatory and contractual framework in which it operates,” the three associations said. They added that the regulatory framework for the calculation of client margin should:
- Allow CCPs to use a margin period of risk (MPOR) that is appropriate to the relevant product in light of the CCP’s default management objectives;
- Not strictly distinguish between products based upon whether they are executed in the OTC market or on a regulated exchange; and
- Not vary solely on the basis of the type of account structure.
