Response to consultation on draft RTS amending Delegated Regulation (EU) 2016 2251 on risk-mitigation techniques for OTC-derivative contracts not cleared by a CCP
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Please see our comment on the 2% credit enhancement in the answer to the next question.
In paragraph 2 (b) we suggest not to use the term “notes” but to stick to the usual vocabulary of “tranche”. It would read: “the SSPE in connection with the securitization to which the OTC derivatives contract is associated is subject to a level of credit enhancement of the most senior securitization tranche of at least 2%”. We note that in article 30(2) (g) that applies to covered bonds the “on an ongoing basis” requirement does not appear. We believe that a true harmonisation is necessary, either way, on this point.
Lastly, we challenge that the 2% threshold which applies for the overcollateralization of covered bonds should be transposed without further assessment to STS securitisations. We fear that it may contradict the quality of the STS label, since many non STS securitisations show a higher credit enhancement in their structure. We also consider that there is a higher level of uncertainty for securitisations compared to covered bonds due to early prepayment for example and in the management of hedging risks on a macro basis. Thus, we recommend to assess this 2% ratio on the basis of both (i) the necessity to develop market finance and promote financing through securitization in the EU and (ii) the need for strong investors’ protection.
Question 1: Do stakeholders agree with the amendments for Delegated Regulation (EU) No 2251/2016 suggested in this CP?
If we agree with the framework for exempting SSPEs from exchange of margin requirements as it is foreseen in the first paragraph of the proposed article 30 (a), we nevertheless have reservations on the second paragraph.Question 2: Are there any additional or alternative requirements for securitisations that stakeholders view should be introduced in Delegated Regulation (EU) No 2251/2016 following the amended mandate in Article 11(15) of EMIR?
We believe that investors should be granted a total transparency on the hedging policy of the securitized portfolio. That implies to have knowledge of any discretion left, reset policy, or risk limits and to have access on an on-going basis to the effective OTC positions. We see merits in adding this as an explicit condition.Question 3: Do stakeholders consider that the condition in draft Article 30a(2)(a) results in a treatment consistent with that provided in Article 30(2)(b) of Delegated Regulation (EU) No 2251/2016?
The objective is to align requirement for covered bonds and SSPEs. Amundi agrees that the possibility to waive the pari passu provision is not relevant in the case of securitisations where there is no dual recourse for creditors.Please see our comment on the 2% credit enhancement in the answer to the next question.
In paragraph 2 (b) we suggest not to use the term “notes” but to stick to the usual vocabulary of “tranche”. It would read: “the SSPE in connection with the securitization to which the OTC derivatives contract is associated is subject to a level of credit enhancement of the most senior securitization tranche of at least 2%”. We note that in article 30(2) (g) that applies to covered bonds the “on an ongoing basis” requirement does not appear. We believe that a true harmonisation is necessary, either way, on this point.
Question 4: Do stakeholders consider that the non consideration of the waiver of the pari-passu rank, in conjuction with the minimum 2% credit enhancement, results in a similar protection of the OTC counterparty in the cases of STS securitisations as in the case of covered bonds? Or would it instead be necessary to retain the waiver currently available for covered bonds also for exceptional situations under STS securitisations?
As mentioned above, we agree that a waiver of the pari passu provision is not relevant in the case of securitisations where there is no dual recourse for creditors. We read in the footnote 10 page 12, that credit enhancement can result from the sheer structure of the securitization and specifically from the calibration of the senior tranche. We believe that, for the sake of clarity, it should be mentionned in the text of the delegated act (or a footnote) that if the senior tranche does not exceed 98% of the securitization credit enhancement will be considered sufficient.Lastly, we challenge that the 2% threshold which applies for the overcollateralization of covered bonds should be transposed without further assessment to STS securitisations. We fear that it may contradict the quality of the STS label, since many non STS securitisations show a higher credit enhancement in their structure. We also consider that there is a higher level of uncertainty for securitisations compared to covered bonds due to early prepayment for example and in the management of hedging risks on a macro basis. Thus, we recommend to assess this 2% ratio on the basis of both (i) the necessity to develop market finance and promote financing through securitization in the EU and (ii) the need for strong investors’ protection.