The most important points regarding this ESMA discussion paper deal with the questions of the pre-notification to the national authority and subsequent reporting of intragroup transaction to the trade repositories (Questions 21 & 22).
We believe that the current Level-1 text makes abundantly clear that in order to use the intragroup exemption, exempted groups only have to notify the competent authority once before entering into subsequent OTC derivative contracts. A notification on a trade-by-trade basis was not intended by the prevailing legislation, as the competent authority may object within 30 calendar days to this exemption. If the regulator were to decide on each single intragroup transaction to be exempted, this would create unprecedented workload from the side of the regulator and would effectively prohibit the use of this intragroup exemption due to the legal uncertainty during the regulator’s veto period.
Once the use of this exemption has been notified to the competent authority, intragroup transactions are treated in the same way as centrally-cleared OTC derivative transactions (IGTs) from a reporting viewpoint. We must strongly underline that IGTs shall not be treated differently to centrally-cleared derivative transactions, as exactly the same information will be transmitted to trade repositories (TRs). We therefore believe that no additional disclosure requirements are obligatory for these types of transactions, as is intended in the Level-1 legislation. For further arguments, please see our answers to Question 21 and Question 22 below.
Even though EMIR calls for fair and open access to the CCPs, becoming a direct clearing member will – in practise – require very high capital requirements that will certainly limit direct clearing members to big financial institutions. Smaller financial counterparties (such as small to medium sized co-operative banks) will most likely only enter into indirect clearing arrangements with a clearing member. Here we would like to underline that these are necessary for our smaller institutions to implement the necessary clearing and should therefore not be burdened with too much “red-tape” which would create unnecessarily higher costs and create an unlevel playing field between bigger and smaller institutions. This cost issue especially rings true when looking at the questions whether all indirect contractual clearing arrangements require individual account segregation. Costs for the end user and the size of the end user and its positions are important considerations for eventually providing individual segregation to end users.