Response to consultation paper on Guidelines specifying the conditions for the application of the alternative treatment of institutions’ exposures related to “tri-party repurchase agreements” for large exposures purposes
Go back
As the definition in the baskets are not based on single issuer names, but more general on asset classes, there would be additional irritations by implementations on new rules as above foreseen. These baskets are specified and limited e.g. by ratings, issue size, wrong-way-risk rules, pricing sources, concentration risks on issuer classes, single issuers or haircuts depending on asset class, maturities and/ or ratings. The advantage is a wide, when it comes to bilateral agreements, customized flexibility on both, the cash taker’s and the cash provider’s side to identify securities which are appropriate to their risk appetite, liquidity needs and to fulfill the requirements of the triparty agreement.
Applying certain limits on exposures to certain collateral issuers would therefore lead to less liquidity, reduced market depth, lesser liquidity management tools and reduced flexibility in the triparty market; every single issuers’ name has to be defined in the triparty agreement and has to be monitored by every credit department of the involved cash provider. Therefore, we do not see a benefit in determining specific limits to each collateral issuer and, if deemed necessary, to exclude certain collateral issuers. Finally, we would like to point out that there is no possibility for institutions to set certain collateral limits for GCPooling transactions with the Eurex at all.
Question 1: Are the definitions and their use throughout the guidelines clear?
NAQuestion 2: Do you think that this general framework is appropriate? Are there other elements that should be included to make the service agreement more comprehensive?
NAQuestion 3: Do you agree with the list of proposed safeguards? If no, please explain why and present possible alternatives.
NAQuestion 4: Do you see any practical reasons that would prevent the implementation of any of the safeguards? If yes, please explain.
NAQuestion 5: Do you consider that the criteria listed in this section, in particular in paragraph 18, provide a sufficient guidance for institutions to determine limits? Are there any other elements that would be useful to include?
NAQuestion 6: Is it clear to you how to apply a ‘margin of conservatism’ as set out in paragraph 19?
NAQuestion 7: Do you think that applying the same criteria for the alternative treatment is a suitable method? Do you consider that there could be alternative ways?
NAQuestion 8: Do you agree with the general approach for the revision of the instructed limits? Is this approach appropriate in the context of general revisions of concentration limits and exclusions that currently govern the relationships with tri-party agents?
NAQuestion 9: Do you agree with the general approach regarding when the limits need to be revised?
NAQuestion 10: Do you think that the guidelines represent an appropriate approach to the monitoring of the instructed limit and in general of the implementation of the alternative treatment?
NAQuestion 11: Do you think that tri-party agents have in place such controls that would facilitate the management of the instructed limits? Would you assess that the control mechanisms should be more precise and prescriptive?
NAQuestion 12: Do you agree with the non-exhaustive list of material concerns?
NAQuestion 13: Are you aware of any other material concerns to be included in the guidelines?
NAQuestion 14: Do you see a need for further clarification of the procedure dealing with a material concern?
NAQuestion 15: Please specify what overall impact the proposed procedure would have on expected practices.
The impact of the proposed procedure would be negative on the secured business, its liquidity and market depth. Counterparties agree individual baskets of securities to secure cash driven transaction in order to place or receive cash versus collateral. Furthermore, Treasuries (all over the industries) use this possibility to manage their liquidity needs safely on a secured, basket driven methodology. This does not only count for bilateral business only but also for CCP-transacted basket trades as i.e.: EUROGCPooling transactions which have been developed, improved and accepted by market participants as a liquidity management tool over the past decade.As the definition in the baskets are not based on single issuer names, but more general on asset classes, there would be additional irritations by implementations on new rules as above foreseen. These baskets are specified and limited e.g. by ratings, issue size, wrong-way-risk rules, pricing sources, concentration risks on issuer classes, single issuers or haircuts depending on asset class, maturities and/ or ratings. The advantage is a wide, when it comes to bilateral agreements, customized flexibility on both, the cash taker’s and the cash provider’s side to identify securities which are appropriate to their risk appetite, liquidity needs and to fulfill the requirements of the triparty agreement.
Applying certain limits on exposures to certain collateral issuers would therefore lead to less liquidity, reduced market depth, lesser liquidity management tools and reduced flexibility in the triparty market; every single issuers’ name has to be defined in the triparty agreement and has to be monitored by every credit department of the involved cash provider. Therefore, we do not see a benefit in determining specific limits to each collateral issuer and, if deemed necessary, to exclude certain collateral issuers. Finally, we would like to point out that there is no possibility for institutions to set certain collateral limits for GCPooling transactions with the Eurex at all.