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.

As per the above, requiring pension funds and other long-term institutional investors to post and collect margin on foreign exchange forward contracts and foreign exchange swaps imposes significant operational as well as cost demands, as well as being inconsistent with BCBS-IOSCO guidance and the Dodd-Frank Act. A potential solution would be to limit the requirements to post and collect margin to contracts between banks and counterparties that are financial institutions and systemically important non-financial entities, defined so as to exclude pension funds and other long-term institutional investors. Please see the attached document for further detail.

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?


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?


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Adrian Lee & Partners