FIA has responded to the European Securities and Markets Authority’s consultation on margin transparency requirements, urging the regulator not to mandate overly prescriptive requirements for clearing member firms, particularly those that do not apply their own margin models but simply pass through clearinghouses’ margin requirements to clients.
ESMA’s consultation on draft regulatory technical standards under Article 38 of the European Market Infrastructure Regulation (EMIR 3.0) covers transparency requirements for both central counterparties (CCPs) and Clearing Service Providers (clearing members and clients providing clearing services – CSPs) in relation to margin models and simulations.
“We strongly support the EU’s overarching policy objectives to enhance transparency and enable clearing members, clients and end-users to be better prepared for margin calls and associated liquidity needs, particularly under stressed market conditions,” said Jacqueline Mesa, FIA’s Chief Operating Officer and SVP of Global Policy.
“However, we urge ESMA to ensure that these RTS remain firmly aligned with the Level 1 mandate, both in scope and proportionality. As set out in Article 38(7) and (8) of EMIR, the primary obligation for margin transparency lies with CCPs, with CSP obligations focused on facilitating the onward transmission of relevant CCP information and providing clients with disclosures when the CSP adds additional margin.”
A recent FIA survey of clearing members finds that 86.5% of clients are charged CCP margin only, 10.5% are charged CCP margin with CSP add-on (most often simple multipliers), and only 3% are subject to CSP proprietary margin models. This means that in practice, most client exposures are driven by CCP margin, with CSP transparency needs limited to onward disclosure and proportionate add-on information.
Considering this, FIA welcomes the focus in ESMA’s draft RTS on strengthening CCP disclosures. Given the clear market evidence that CCP margin is the primary driver of client exposures, CCP disclosures and simulations should be prioritised.
Furthermore, FIA urges ESMA to more carefully consider whether the proposed requirements on CSPs are proportionate, risk-based and supported by a clear rationale. This includes gathering more information on the actual needs and expectations of clients before introducing detailed and prescriptive measures.
One example in the proposals is that CSPs should provide "two scenarios related to the individual risk of the client". This goes beyond CCP simulation requirements and is not an efficient way to provide transparency to end-users, especially if a CSP has hundreds, if not thousands, of clients with individual risk.
“Overly burdensome or non-risk-aligned requirements on EU-based CSPs, particularly where similar expectations are not imposed globally or not in line with international standards, may inadvertently weaken the relative attractiveness and scalability of clearing services in Europe,” said Mesa.
Recommendations:
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Reinforce the transparency requirements for CCPs in line with EMIR Article 38(7),
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Ensure that CSP disclosures are proportionate, risk-based and do not go beyond the clear limits of Level 1, and
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Clarify and streamline simulation expectations in ways that add value for clients while remaining operationally feasible for CSPs.
Separately, while Article 10 of the draft RTS is not subject to consultation, FIA urges ESMA and the European Commission to ensure that the final RTS includes a proportionate and realistic compliance timeline that reflects the operational, legal and technological complexity of the proposed requirements, especially for CSPs.
Many CSP disclosure and simulation obligations under the draft RTS are dependent on CCPs first implementing their own transparency frameworks. Therefore, FIA recommends a staggered implementation approach, where CCPs are subject to an earlier compliance deadline, and CSPs follow only after CCP outputs are available and accessible.
Without such staging, CSPs would be unable to comply in practice, leading to unintended regulatory breaches and operational risk.
Read the response in full.
