The European Supervisory Authorities (ESAs) have launched a consultation on draft Regulatory Technical Standards (‘RTS') covering:
- the risk management procedures for counterparties to non-centrally cleared OTC derivatives - prescribing that counterparties apply robust risk mitigation techniques to their bilateral relationships, which will include mandatory exchange of initial
and variation margins to reduce counterparty credit risk, mitigate any potential systemic risk and ensure alignment with international standards. The RTS lay down the methodologies for the determination of the appropriate level of margins, the criteria that
define liquid high-quality collateral, the list of eligible asset classes, collateral haircuts and concentration limits;
- the procedures for counterparties and competent authorities concerning intragroup exemptions; and
- the criteria for the identification of practical and legal impediments to the prompt transfer of funds between counterparties - the ESAs are proposing not to allow re-hypothecation of collateral collected for initial margins.
Feedback is sought by 14 July 2014 with a view to submitting final RTS to the Commission for approval before the end of 2014.
Related link:
http://www.eba.europa.eu/documents/10180/655149/JC+CP+2014+03+%28CP+on+risk+mitigation+for+OTC+derivatives%29.pdf