Response to consultation on RTS to specify the highly liquid financial instruments in the reserve of assets under MiCAR
Question 1. Do respondents have any comment on the list of eligible highly liquid financial instruments provided under point (c) of Article 1(1) of these draft RTS?
In general, it makes sense. However, for an ART that does not reference any official currency ((c) (iii)), I wonder if you are introducing leveraged risk by allowing derivatives related to the assets referenced. Maybe the amount of derivatives should be capped to no more than 5% of the reserves.
Question 2. Do respondents have any comment on the general and operational requirements to be met by highly liquid financial instruments provided under points (a) and (b) of Article 1(1) of these draft RTS? Please explain if some criteria is expected to be challenging to be met in practice.
I have no comments.
Question 3. Do respondents find the treatment for hedging derivatives under Article 2 clear to be applied?
Yes
Question 4. Do respondents think that the draft RTS create any impediment for issuers to ensure a good control of the correlation between the highly liquid financial instruments and the assets referenced? This is particularly relevant for the case of tokens referenced to assets other than official currencies.
Yes. Based on the paragraph from page 5 of this consultation document (see paragraph below on quotations), it appears that it is possible that the issuer of an ART that does not reference any official fiat currently receives different types of crypto-assets and that the issuer is allowed to keep this as the reserve. I think the issuer of an ART (that does not reference an official fiat currency) “should” invest in the same reference rather than letting it be up to the issuer (for example, if an ART mimics/references ETH, then the issuer should have all or ~99% of the reserves in ETH). If that is not the case, then the crypto-asset (not referenced by the ART) used as the reserve must be properly evaluated from a risk perspective, and a haircut should be taken on that crypto-asset based on the risk of that crypto-asset. Otherwise, one could create an ART that references ETH, where the issuer receives many crypto-assets of dubious quality when selling the ART, and the issuer keeps those cryptos of dubious quality as part of the reserve. Ideally, the issuer should be required to use an independent third-party rating company to provide risk scores/ratings for such crypto-assets.
“2. The reserve of assets shall be composed of the assets that the issuer receives and keeps when issuing the tokens (e.g. deposits with credit institutions, commodities, financial instruments…) and by the highly liquid financial instruments the issuer may invest in.”
Question 5. Do respondents have any concern about the feasibility for issuers to have the minimum amount of reserve of assets considering the list of eligible highly liquid financial instruments, the one-to-one currency matching requirement in Regulation (EU) 2023/1114 and the concentration limits under Article 3 of these draft RTS? This is particularly relevant for tokens referenced to official currencies.
No
Question 6. Do respondents have any concern about the operational feasibility of the look through approach envisaged in paragraph 3 of Article 3 of these draft RTS? If yes, please elaborate your answer and specify the reasons for the concerns.
No
Question 7. Do respondents have any comment with regards to the unwind mechanism proposed under Article 4 of these draft RTS and the related examples provided?
No
Question 8. Do respondents have any general comment about the interaction of these draft RTS with the business model and the continuity of the business of these activities?
No
Question 9. Do respondents find any provision in these draft RTS confusing or difficult to understand?
No
Question 10. Do respondent have any comment on the impact assessment provided?
No