Submission #17

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Barclays

Question 1. What costs will the proposed collateral requirements create for small or medium-sized entities, particular types of counterparties and particular jurisdictions? Is it possible to quantify these costs? How could the costs be reduced without compromising the objective of sound risk management and keeping the proposal aligned with international standards? N/A

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.

Our response focuses on the operational issues that will arise from the current rules. In particular we focus on those that will prevent market access, or create operational burden without systemic risk reduction.

Question 3. Does the proposal adequately address the risks and concerns of counterparties to derivatives in cover pools or should the requirements be further tightened? Are the requirements, such as the use of the CRR instead of a UCITS definition of covered bonds, necessary ones to address the risks adequately? Is the market-based solution as outlined in the cost-benefit analysis section, e.g. where a third party would post the collateral on behalf of the covered bond issuer/cover pool, an adequate and feasible alternative for covered bonds which do not meet the conditions mentioned in the proposed technical standards?

We believe that the rules on covered bonds should be extended to securitisations – as detailed in our response, and that from AFME which we have contributed to. Also, we believe that the third party solution being offered is effectively the role that is played currently by the swap counterparty themselves. This is because they have to find the funding to collateralise their hedge, and they take credit risk to the Covered Bond (albeit carefully managed). Therefore, we see the use of third parties as adding unnecessary complexity to the existing process.
Additionally, we believe that the swap counterparties are adequately protected in the existing mechanisms, and therefore should be exempted from the rules.

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?

We feel that the protection of proprietary information will mean that IRB approaches are very difficult to use in practise, giving rise to many disputes. Therefore we expect most participants to fall back to ECAIs

Question 5. How would the introduction of concentration limits impact the management of collateral (please provide if possible quantitative information)? Are there arguments for exempting specific securities from concentration limits and how could negative effects be mitigated? What are the pros and cons of exempting securities issued by the governments or central banks of the same jurisdiction? Should proportionality requirements be introduced, if yes, how should these be calibrated to prevent liquidation issues under stressed market conditions?

We feel that concentration rules will reduce market access for some participants with non-diverse asset pools, and will increase operational burden without reducing systemic risk. Please see our response for details.

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?

We believe that other jurisdictions may allow rehypothecation in a way that will work, and therefore we suggest that an outright ban in the EU is not appropriate.

Upload files Barclays Response to ESMA_EBA_Draft_RTS_Apr14.pdf

Name of organisation Barclays