Response to joint Consultation on draft RTS on risk-mitigation techniques for OTC-derivative contracts not cleared by a CCP

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Question 2. Are there particular aspects, for instance of an operational nature, that are not addressed in an appropriate manner? If yes, please provide the rationale for the concerns and potential solutions.

In general, we believe that the regulation drafted here is better suited for the banking sector while the guidelines produced by ESMA regarding collateral management is better suited for UCITS. In particular a number of operational issues would make it inefficient and costly for UCITS to manage collateral without further lowering risk and increasing the pressure on cash at system level.

In particular, although we appreciate the possibility foreseen in the draft of using shares of UCITS as collateral, from a technical point of view it appears difficult to implement as a number of technical issues; in particular, as of today, an integrated European settlement circuits for UCITS does not exist and prompt transfer between counterparties located in different countries is practically impossible. In general we expect growing pressure on liquidity, due to increased demand for cash stemming from mandatory bilateral collateralization, mandatory clearing via CCP for standard derivatives, counterparties preference for collateral posted in cash.

Question 4. In respect of the use of a counterparty IRB model, are the counterparties confident that they will be able to access sufficient information to ensure appropriate transparency and to allow them to demonstrate an adequate understanding to their supervisory authority?

In our view, we expect the sharing of information and the monitoring of internal rating model to be of difficult implementation as it would mean - at least to a certain extent - requiring/granting the counterparty access to internal evaluation and methodology. We expect as the most likely scenario, the emergence of third parties models which can be adopted and agreed upon by both counterparties.

Question 6. How will market participants be able to ensure the fulfilment of all the conditions for the reuse of initial margins as required in the BCBS-IOSCO framework? Can the respondents identify which companies in the EU would require reuse or re-hypothecation of collateral as an essential component of their business models?

We believe that the rules for reuse of initial margins identified in BCBS –IOSCO regulation offer sufficient guarantees for counterparties posting margin and we do not think that re-use and re-hypothecation should be banned altogether.

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