We refer to Chapter 5, Art 1 FP (Final provisions) paragraphs 3(e) and 5. We do not consider that the methodology for determining which entities are subject to the obligations set out in the rules is appropriate. We agree with the intention that the proposals in the rules should be applied by the largest, systemic OTC counterparties. We also agree with the phased in approach of the obligations depending on the volume of activity by counterparties. However, we consider that the “notional amount of non-centrally cleared derivatives in excess of EUR 8 billion” should be modified as set out in Parts A and B below.
Part A – We believe that trades with clients who are not subject to EMIR (e.g., natural people) should be excluded when calculating this threshold. Natural people are excluded from the obligations pursuant to EMIR on the basis that their participation in these markets is non-systemic. We consider that determining whether a firm is subject to the obligations in these rules should only be determined according to their volume of activity with financial counterparties and non-financial counterparties as defined in EMIR. This is because transactions with financial counterparties and non-financial counterparties are transactions that could result in systemic risk.
We propose that if a financial counterparty performs more than 50% of their non-centrally cleared transactions with non-systemic entities, i.e. with counterparties that are not subject to EMIR, then those transactions should be excluded from the calculation of the EUR 8 billion threshold.
Part B - We also consider that it should be clarified that intra-group transactions are excluded when calculating this threshold. Our group performs intra-group transactions because one entity in the group hedges all of the exposure from all of the group’s client facing entities. We agree that the hedging transactions should be subject the calculation and, as proposed by Part A above, transactions by client facing entities with financial counterparties and non-financial counterparties under EMIR should also be subject to the calculation. The trades intra-group between each of the client facing entities and the hedging entity do not affect the total exposure of the group and should not be included.
We do not consider that modifying the obligations as we have suggested is inconsistent with the objectives of EMIR and the rules. We consider that adopting the rules without making these changes would impose disproportional costs and obligations on firms that trade with non-systemic entities such as natural people. We acknowledge the work done by the BCBS and IOSCO but do not consider that our proposals would materially detract from the guidance they have issued or international developments.
We refer to Chapter 1, Article 2, GEN (Risk management procedures in specific cases) paragraphs 3 and 5. Paragraph 3 provides that the parties may agree that no initial margin needs to be exchanged up to EUR 50 million provided that the parties hold capital against their exposure to their counterparties. We presume that this exemption is able to be applied if the initial margin obligation between the parties exceeds EUR 50 million so that only the amount exceeding the threshold would be required to be transferred as initial margin to the other group and not the total amount but consider that this could be clarified further.