2014_1653 Reporting of Liabilities against the initial margin and default fund

Question ID:

2014_1653

Legal Act:

Regulation (EU) No 575/2013 (CRR)

Topic:

Supervisory reporting - Asset Encumbrance

Article:

100

COM Delegated or Implementing Acts/RTS/ITS/GLs/Recommendations:

Regulation (EU) No 680/2014 - ITS on supervisory reporting of institutions (repealed)

Article/Paragraph:

100

Disclose name of institution / entity:

Type of submitter:

Credit institution

Subject Matter:

Reporting of Liabilities against the initial margin and default fund

Question:

As per EBA/GL/2014/03 issued on 27 June 2014, it was stated that initial margin and default fund should be classified as encumbered. We would like to know how to determine the liabilities against those and report into F32.04.

Background on the question:

All the members of the central clearing exchange are required to contribute to the default fund in form of cash or securities which could be used in case of default by any member. Further as part of the derivative contracts, institutions post initial margin. As per guidance issued, the initial margin and default funds have been asked to be classified as encumbered. We would like to know how we determine the amount of the liabilities against such collateral posted.

Date of submission:

28/11/2014

Published as Final Q&A:

19/06/2015

Final Answer:

Point 11 of paragraph 1.7 of Annex XVII of Regulation (EU) No 680/2014 (and point d) paragraph 5 in Title I of the Guidelines) provide that 'collateral placed at clearing systems, CCPs and other infrastructure institutions as a condition for access to service', including default funds and initial margins, are well covered by the definition of encumbrance.

According to point 19 of paragraph 2.4.1 of Annex XVII of Regulation (EU) No 680/2014 template F 32.04 on the sources of encumbrance (AE-SOU), the different sources of encumbrance include those 'sources with no associated funding as loans commitments or financial guarantees received and securities lending with non-cash collateral'. It follows that certain assets may be encumbered with no associated liability.

The reporting of initial margins required to open the position and any collateral placed for the market value of derivatives transactions is specified in (v) of point 14 of paragraph 2.1 of Annex XVII of Regulation (EU) No 680/2014. Default funds in central clearing counterparties or exchange should be applied the same treatment as initial margins required to open the position and any collateral used in derivative transactions.

This question refers to the EBA/GL/2014/03 (the Guidelines) regarding disclosures on encumbered and unencumbered assets, but relates to the filling of a supervisory reporting template. Unless specified otherwise in the Guidelines, the instructions in Annex XVII of Regulation (EU) No 680/2014 apply to the templates in the Guidelines (cf. Title II, paragraph 1).

Status:

Final Q&A

Answer prepared by:

Answer prepared by the EBA.